Oregon Democrat Sen. Ron Wyden on Tuesday introduced a bill that would phase out the qualified business income deduction – implemented as part of the 2017 Tax Cuts and Jobs Act – for wealthier business owners.
The measure, called the Small Business Fairness Tax Act, would also expand eligibility for middle and lower-class small business owners by removing "arbitrary" restrictions on the types of industries that qualify.
The deduction currently allows certain pass-through businesses, engaged in a qualified trade or business, to deduct up to 20 percent of their business income from their income taxes.
Wyden, who chairs the Senate Finance Committee, proposed phasing out the deduction for households earning at least $400,000 per year, which is in line with President Biden’s pledge not to raise taxes on any household earning less than that specified threshold.
He argued that while a significant number of small businesses are organized as pass-through entities, many pass-throughs are not small businesses.
In a statement, Wyden said that few policies indicate Republicans’ commitment to giveaways favoring the top 1% like the pass-through deduction.
"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. "The mega-millionaires get to write-off 20 percent of their income while middle-class accountants are cut out. This makes no sense, and my bill would overhaul the deduction to ensure its benefitting Main Street small businesses."
His office said that 61% of the benefits of the small business deduction, the way it is written, go to the top 1% of households.
The Joint Committee on Taxation estimated in 2018 that the measure would disproportionately benefit people earning at least $1 million.
The QBI deduction has been characterized as "complex". President Biden said he would modify it during his campaign for the presidency.
It is scheduled to expire at the end of 2025.