Making Section 199A deduction permanent would save millions of jobs, new study says

The Section 199A tax deduction for small and family-owned businesses supports 1.1 million jobs directly, 590,000 jobs through increased employee compensation, and another 853,000 jobs from related consumer spending increases, according to a new study released on Monday that calls for making the deduction permanent.

The new study, entitled “ Economic activity supported by the Section 199A deduction ,” mirrors a bipartisan bill pending on Capitol Hill that would make permanent the tax deduction for qualified business income. Under current law, the deduction expires after Dec. 31, 2025.

Specifically, the study’s results highlight the importance of Section 199A and how the expiration of the deduction threatens millions of jobs.

“Absent congressional action, 2.6 million jobs will be at risk,” according to the study, released Sept. 9 by the S Corporation Association and authored by Robert Carroll at Ernst and Young.

To put these numbers in perspective, there are 140 million private-sector jobs, of which 88 million (or 62 percent) are located at pass-through businesses — the businesses eligible for Section 199A. Allowing Section 199A to expire would put more than one percent of all pass-through jobs and nearly 2 percent of all private-sector jobs at risk, the study says.

“Making the Section 199A small and family business deduction permanent is essential to blocking a massive tax increase on Main Street businesses while ensuring they remain competitive with the lower rate applied to larger, public corporations,” said Brian Reardon, president of the S Corporation Association.

“This study makes clear that 199A supports millions of jobs located in thousands of communities around the country,” he added. “Without it, those communities would have fewer jobs, lower wages, and smaller economies.”

The study focuses on the economic footprint of the 199A deduction and answers the question: “Just how much economic activity is supported by Section 199A?”

The Section 199A deduction, which was created under the 2017 Tax Cuts and Jobs Act, provides a 20 percent deduction for pass-through businesses, allowing these businesses to reinvest their capital, increase wages, and hire more employees.

Specifically, the new study found that 2.6 million jobs and $325 billion of the GDP are supported by the deduction. Smucker’s bill would make the 20 percent pass-through business tax deduction permanent.

“This report underscores what I have heard directly from small and family-owned businesses in my community and across the nation — Section 199A allows main street businesses to grow, create jobs, and invest in their community,” said U.S. Rep. Lloyd Smucker (R-PA), who sponsored the Main Street Tax Certainty Act, H.R. 4721, in July 2023 alongside 91 original cosponsors.

“Making Section 199A permanent will prevent a massive tax hike and provide small business owners and their employees the certainty they need to thrive,” the lawmaker said.

U.S. Sen. Steve Daines (R-MT), who in May 2023 led the identical bill in his chamber, the same-named S. 1706, said it’s no surprise that when small businesses get much-needed tax relief, they not only thrive, but they help the whole economy grow.

“It’s time this tax deduction is made permanent so that Montana small and family-owned businesses can continue to create jobs, serve their communities and spur economic activity,” said the senator.

Reardon also thinks that the Main Street Certainty Act should be part of any tax package considered by Congress next year.

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