A bill that would make advisory firms eligible for pass-through tax deductions has been introduced in the Senate.
The bill, introduced today by Senate Finance Committee Chair Ron Wyden (an Oregon Democrat), aims to overhaul the pass-through deduction by expanding eligibility for certain small business owners while simultaneously rolling back giveaways to the top 1% of wealthiest Americans by putting an income limit on eligibility.
The Small Business Tax Fairness Act would overhaul the 199A qualified business income deduction that was included in the Tax Cuts and Jobs Act of 2017, which called for a 20% deduction to pass-through businesses. Eligibility would be expanded to middle- and lower-class small business owners such as accountants and financial advisors.
The bill would phase out the deduction for individuals earning more than $400,000 in order to cover the cost of expanding the pass-through deduction to Main Street small businesses and help finance priorities like childcare and education, the release said.
“Few policies showcase Republicans’ commitment to giveaways to the top 1% like the pass-through deduction created in their 2017 bill. Half the benefit of the pass-through deduction goes to millionaires, and because the benefit is so skewed toward the top, many Main Street small business owners are excluded,” Wyden said in a news release. “This bill is a win-win. It’s going to make the policy more fair and less complex for middle-class business owners, while also raising billions for priorities like childcare, education and healthcare.”
The release noted that most small businesses are organized as pass-through businesses, but they are not small. Pass-through small businesses account for 58% of all businesses with more than $50 million in receipts, the release said.
Wyden’s bill would expand eligibility for middle-income owners of services businesses by removing restrictions on the types of industries that qualify, the release said. Current limitations cause taxpayers “tremendous confusion” in trying to figure out if they are a “specified service trade or business," the release said.
The bill also would simplify the calculations of Main Street businesses by establishing one threshold for determining whether a taxpayer gets the deduction and one simple definition of qualified business income that applies to all taxpayers, the release said. “Small business owners would no longer have to calculate their deduction using formulas and limitations based on W-2 wages paid and qualified investments,” the release said.
The Investment Adviser Association, a Washington, D.C.-based group that serves the interests of the investment advisory profession, applauded the new legislation, but with reservations.
“The IAA has long supported making the pass-through deduction available to investment advisory firms, which are predominately small businesses,” said Neil A. Simon, vice president, government relations. “While we’re encouraged that the bill would make this significant deduction broadly available to owners of service businesses as we’ve advocated, we’d prefer that it not include an income limit."