ASA Supports Increasing Section 199A Deduction to 23%

ASA, in collaboration with the Main Street Partnership, has urgently called upon Senate Leadership to support the permanent establishment and expansion of the Section 199A deduction, increasing it from 20 to 23 percent. Enhancing Section 199A is crucial to maintaining tax parity between pass-through businesses and larger public corporations, while ensuring the Senate bill does not impose higher taxes on millions of Main Street businesses. The Section 199A deduction is instrumental in maintaining competitive neutrality within the Tax Code. The 2017 Tax Cuts and Jobs Act reduced the corporate tax rate from 35 percent to 21 percent, leaving pass-through businesses, which are taxed at much higher individual rates, vulnerable to a long-term competitive disadvantage. Section 199A was implemented to address this disparity and maintain a level playing field.

 While the Senate bill proposes to make the 199A deduction permanent, it also suggests halving the ability to deduct State and Local Taxes (SALT) as a business expense. This change would result in a tax increase for millions of pass-through businesses compared to their current tax obligations. Expanding the 199A deduction would counterbalance this tax hike, building on a policy with a proven track record. Since its introduction, Section 199A has enabled tens of millions of Main Street businesses to reinvest in their operations and workforce. Data from the IRS and Treasury confirm that the benefits of the deduction extend to job creators in every community and congressional district across the nation. The deduction serves as a vital tool for navigating economic challenges and remaining competitive in an increasingly consolidated market.

We commend the Finance Committee for making Section 199A permanent and strongly encourage the adoption of the House-passed expansion of Section 199A. This will ensure that the final tax package is growth-oriented, job-supportive, and prevents tax increases on many of America’s Main Street businesses.