July 20,2021

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Wyden Introduces Small Business Tax Fairness Act to End Republican Giveaways to Top 1 Percent

Wyden’s bill would expand the pass-through deduction to Main Street small business owners and raise billions for Democrats’ child care, education, health care priorities

Washington, D.C. – Senate Finance Committee Chair Ron Wyden, D-Ore., today introduced legislation to overhaul the pass-through deduction, expanding eligibility and increasing access for Main Street small business owners by ending Republicans’ giveaways to the wealthiest Americans.

“Few policies showcase Republicans’ commitment to giveaways to the top 1 percent 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. 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,” said Wyden. “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 child care, education and health care.” 

While most small businesses are organized as pass-through businesses, many pass-through businesses are not small. In fact, pass-through businesses account for 58 percent of all businesses with more than $50 million in receipts. 

As created by Republicans, the 20 percent pass-through deduction disproportionately benefits the wealthiest Americans. Sixty-one percent of the monetary benefit of the pass-through deduction goes to the top 1 percent of households. The Small Business Tax Fairness Act would ensure the pass through deduction helps Main Street small business owners, not wealthy real estate investors.

First, the bill would expand eligibility for middle-income services business owners by removing arbitrary restrictions on which industries qualify and which don’t. The current limitations cause tremendous confusion for taxpayers trying to figure out if they are a “specified service trade or business” without an army of accountants and lawyers. Chair Wyden’s bill would eliminate this red tape.

Second, the bill would also simplify the calculations of Main Street businesses to determine their deduction. The deduction’s multiple caps and thresholds make calculating the deduction and determining eligibility unnecessarily complicated. The bill would establish one threshold for determining whether the taxpayer gets the deduction and one simple definition of qualified business income that applies to all taxpayers. Small business owners would no longer have to calculate their deduction using formulas and limitations based on W-2 wages paid and qualified investments.

To both cover the cost of expanding the pass-through deduction to Main Street small businesses and help finance priorities like child care and education, the proposal would phase out the deduction for individuals earning more than $400,000.

“Senator Wyden’s proposal will raise billions to support much needed infrastructure programs and eliminate vexing complexity in the tax code, while lowering taxes on a key segment of business owners,” said John Arensmeyer, Founder and CEO of Small Business Majority. “Reducing complexity and increasing deductions will re-focus this tax benefit for many small business owners that need this the most, rather than a tiny percentage of the very wealthiest business owners who have access to an army of lawyers and accountants to help them take advantage of deductions and loopholes. We commend Senator Wyden for leading on this issue and we look forward to working with him to enact provisions that will benefit true Main Street small businesses by enabling them to operate within a more equitable tax system.”

“Investing in thriving local communities means everyone must pay their fair share. Large corporations take advantage of tax loopholes and get out of investing in their communities, which ultimately harms small businesses. To support small businesses, a simplified, more equitable tax code that holds the wealthy accountable means greater investment for main streets across the country,” said Chanda Causer, Co-Executive Director of the Main Street Alliance. “The Small Business Tax Fairness Act accomplishes both those goals—simplifying taxes for small businesses, as well as closing loopholes for the wealthy and corporations accustomed to exploiting a convoluted tax code.”

“We've heard from small business owners across the country and there are overwhelming majorities ready to support both a fairer tax system and historic infrastructure investments. Our Small Business for America's Future survey found that 72 percent of small business owners believe our tax code favors large corporations and two-thirds support raising taxes on wealthy corporations to pay for investments in our communities,” said Renee Johnson, senior advisor, Small Business for America’s Future. “Senator Wyden's Small Business Tax Fairness Act is an opportunity to level the playing field for the small businesses that power our communities and provide the resources we need for a thriving Main Street.”

“Sen. Wyden is fixing one of the worst parts of the 2017 GOP tax law by actually limiting to small businesses what was falsely advertised at the outset as a small-business tax break,” said Frank Clemente, executive director of Americans for Tax Fairness. “By excluding hedge fund managers and real estate speculators like former President Trump, Wyden’s reform will probably raise more than $100 billion that can be used to support real neighborhood businesses and their working-family customers.”

“As a small business owner and accountant, I've seen firsthand how our tax system hurts small business owners. Loopholes and tax breaks for large companies create a huge deficit in our country’s budget leaving too much of a burden on small business and the middle class. These loopholes are why 75 percent of small business owners said they don't believe large corporations are paying their fair share in a national survey by Small Business for America's Future,” said Anne Zimmerman, founder of Zimmerman and Co. CPAs, co-chair of Small Business for America’s Future. “We are long past due for changes that ensure big business pays their fair share, and makes tax season easier for main street businesses. The Small Business Tax Fairness Act will allow more small business owners to access the same benefits as their larger competitors and is an important step in the right direction toward both fairness and simplicity.”

“For small businesses like mine, the Small Business Tax Fairness Act will make tax season more fair, and less complex,” said Main Street Alliance of Oregon member Tina Lyon, owner of Double River Forwarding. “I want to thank Senator Wyden for supporting small businesses like mine by focusing this law on those who need it most, and bringing in more investment for our main streets.”

Text of the bill is available here.

A one-page summary is available here.