Urge Congress to Deliver Meaningful Tax Relief to Main Street

Dear Chairman Smith, Chairman Crapo, Ranking Member Neal, Ranking Member Wyden and members of the U.S. House Committee on Ways & Means and U.S. Senate Committee on Finance:  

On behalf of the Small Business Tax Reform Coalition (SBTRC) and the undersigned small business owners from across the nation, we write to urge Congress to deliver meaningful tax relief to Main Street by supporting Congresswoman Gwen Moore's (WI-4) legislation that implements critical reforms to the 199A pass-through deduction that was included in the 2017 Tax Cuts and Jobs Act (TCJA). The 199A deduction has been lauded as a saving grace for small businesses; however, the deduction as it’s currently written has not successfully reached the majority of Main Street businesses.  

The upcoming expiration of the Section 199A pass-through deduction—which currently allows sole proprietorships, partnerships, and S corporations to deduct up to 20% of their qualifying business income (QBI) from federal income taxes—presents a crucial opportunity for Congress to reevaluate and restructure the deduction to better support small businesses. While proponents of Section 199A often argue that this “small business deduction” benefits Main Street, the reality is that much of its tax savings flowed to the nation’s wealthiest entities and highest-income earners while true small businesses were left with little to no relief. In fact, pass-through entities, which represent 95% of small businesses, with adjusted gross incomes (AGI) of $100,000 or less received an average deduction of just $1,997 while the wealthiest entities enjoyed average deductions of over $1 million. The actual tax savings on a deduction that small is even more insignificant.

Furthermore, an analysis conducted by the Joint Committee on Taxation found that more than half of the tax savings claimed under 199A went to the top 1% of income earners. These entities do not reflect the Main Street businesses that proponents of the deduction have claimed it supports. Instead, the data illustrates how the current structure of 199A has been leveraged by high-income individuals to disproportionately capture tax benefits while the smallest businesses are left to bear the brunt of our nation’s tax burden.  

Given the opportunity to revisit the structure and effectiveness of 199A, we urge Congress to seize the moment to replace the current 20% deduction with a simplified passthrough deduction of up to $25,000. This set-dollar deduction would play a pivotal role in reducing the taxable income of millions of small businesses that have not seen substantial savings from the current deduction. For example, a business owner with $50,000 in Qualified Business Income (QBI) would receive a 199A deduction of just $7,080 after claiming the standard deduction in 2024. Under this alternative proposal, that same business owner could deduct up to $25,000 from their tax liability — significantly reducing taxable income and leaving more money in the hands of our nation’s smallest businesses. While an extension of 199A under current law is estimated to cost a staggering $700 billion over the next decade, this proposal offers a more fiscally responsible approach by capping the deduction at $25,000 which will significantly lower the cost of the provision while also increasing tax relief for the smallest businesses that failed to benefit from 199A in its current form.

To remain competitive, small businesses require a tax code that prioritizes their sustainability and growth, enabling them to make investments in their operations and workforce. However, our nation’s current tax code does not work for Main Street. In fact, over 80% of small business owners today believe that the tax system favors large corporations over their small business. As economic uncertainty continues to weigh on Main Street, it’s no surprise that 88% of small businesses have listed tax relief and incentives as their top priorities for the 119th Congress. 

A mere blind extension of Sec. 199A would be a shortsighted approach that will continue to tilt the scales in favor of larger and wealthier businesses. Small businesses simply cannot afford for Congress to forgo the opportunity that the expiration of Sec. 199A presents to craft more targeted and meaningful tax reforms that will enable our nation’s smallest businesses to grow into local job creators and economic innovators.  

The clock is ticking for Main Street. Congress must stand with America’s entrepreneurs and act quickly to provide the true tax relief that so many lawmakers claim they want for small businesses.