In a striking maneuver that demonstrates a continued trend of prioritizing the affluent, Senate Republicans are preparing to debate a substantial suite of tax breaks recently pushed through by House lawmakers. Central to this discussion is the controversial Section 199A deduction for qualified business income (QBI), a provision that emerged as a hallmark of the Tax Cuts and Jobs Act of 2017. Currently, this tax break offers up to a 20% deduction on eligible revenue, poised to expire unless Congress intervenes before 2025. The latest “One Big Beautiful Bill Act” proposed by House Republicans aims not merely to extend this deduction but to elevate its seriousness—expanding it to a 23% deduction by 2026.
While on the surface expanding tax benefits for small and freelance business owners may seem appealing, digging deeper reveals a troubling reality. The proposed changes disproportionately favor higher earners while still framing the conversation around aiding small businesses—a misleading narrative at best.
Who’s Actually Benefiting?
The QBI deduction applies to a spectrum of businesses known as pass-through entities, incorporating partnerships, S-corporations, and even those freelancers and entrepreneurs who make it through the labyrinth of bureaucracy to report profits on their personal tax returns. Yet, as critically noted by tax policy experts like Erica York from the Tax Foundation, the real beneficiaries of this act are not the everyday workers trying to scrape by as gig economy participants. Instead, they are affluent business owners whose profits are listed on their tax returns.
While statistics reveal an increase in QBI claims—from 18.7 million in its inception year of 2018 to approximately 25.6 million in 2022—this uplift disguises a significant inequality. The income thresholds at which deductions begin to phase out sharply indicate a system rigged in favor of the wealthy: in 2025, single filers will see deductions start disappearing above $197,300, while the threshold doubles for those married filing jointly. Thus, the actual benefit of the deduction skews heavily towards the upper-income brackets, creating a tax landscape that fails to support the very individuals it’s purportedly designed to help.
Exclusion of Specific Professions
A disconcerting aspect of the QBI deduction is its selective exclusion of specific high-income professions categorized as “specified service trades or businesses” (SSTBs), including doctors, lawyers, and accountants. Once their income surpasses prescribed limits, these professionals are entirely barred from claiming the deduction. This restriction is a contentious point, particularly as the proposed House bill seeks to modify the income phase-out calculations in such a manner that it could substantially favor higher-income SSTB owners. Such outcomes only go on to perpetuate a cycle of wealth accumulation for the elite while sidelining the interests of average workers and small business owners.
The implications of these ongoing policies extend beyond mere tax considerations and into the very fabric of social equity. By redesigning the QBI deductions without revisiting their impact on middle and lower-income earners, legislators are broadening the gulf between rich and poor, thereby embedding inequality into our tax structure.
A Revealing Futility
This looming legislative debate is less about empowering small business owners and more about implementing tax policies that benefit the highest echelons of society. While there’s superficial appeal in the idea that such expansions might provide tax “benefits” to all income levels, the truth remains: changes will primarily serve higher-income individuals, particularly those already nestled within elite sectors of the economy.
As tax policy continues to evolve within this framework, one can’t help but question the ethicality behind such financial maneuvering. Are we simply accepting a political trade that favors a select few while ignoring the tremendous weight of middle-class burden? The call for reform should resonate beyond superficial benefits, addressing equity for all, not just the well-connected. The spiraling social and economic inequality should demand more from our lawmakers—an urgent redirection of focus towards policies that genuinely uplift the broader populace rather than coddling the wealthy elite.