Democrats consider 20% tax cut reform for businesses

Democrats consider 20% tax cut reform for businesses

Congressional Democrats are considering 20% ​​tax cut reform as part of a $ 3.5 trillion federal spending program.

According to a discussion list obtained by CNBC, the Democrats’ proposal would eliminate tax breaks for business owners with taxable income over $ 400,000. It would remove some existing restrictions and provide tax deductions to more people below the $ 400,000 limit.

A discussion list is a draft of ideas that lawmakers put together before they are formally presented to the House or Senate. Democrats are evaluating changes to the tax code to help raise funds of up to $ 3.5 trillion to spend on climate, education, paid vacation and other measures.

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Improved pass-through deductions will increase “significant revenue while providing a new tax deduction for Main Street small business owners,” according to the list.

The deduction, also known as 199A, was created by the Republicans Tax Act of 2017, the iconic legislative achievement of President Donald Trump. This transfer allows business owners – such as sole proprietors, partnerships and S corporations – to write off 20% of their business income.

Most of its benefits go to wealthy taxpayers.

In 2018, according to the Joint Committee on Taxation, a non-partisan body reporting to the US Congress, about 53% of its $ 40 billion value went to people with incomes over $ 500,000. By 2024, this share is expected to reach 61% of the total of $ 60 billion.

possible change

While the Democrats’ discussion list is short on details, the transmission policy changes that float resemble concepts that Senate Finance Committee Chairman Ron Wyden, D-Ore., Included in a recent law Project.

Wyden’s law would eliminate the 20% deduction for business owners with taxable income over $ 400,000, eliminating the tax break entirely once income exceeds $ 500,000.

The Wyden-sponsored bill would also expand eligibility for tax breaks.

Currently, owners of some service businesses – such as lawyers, physicians, veterinarians, and financial advisers – do not get a full deduction if their income exceeds $ 164,900 (single filers) or $ 329,800 (couples married filing jointly) in 2021. They cannot receive it at all if their income exceeds $ 214,900 (single) or $ 429,800 (married).

The impact deduction is expected to disappear after 2025, which means that any reform will expire after a period of a few years, without an extension. President Joe Biden has not proposed any changes to tax breaks in his annual budget.

Some business groups have argued that limiting or repealing the cuts would hurt small businesses and lead to fewer jobs, lower wages and lower economic growth.

According to a joint document released in June by the Coalition for Business, “Such a change would amount to an increase in direct taxes on American Main Street employers, a major reason for the tax cuts announced by the White House in March remain fully intact. ” East.” Federation.



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