HR-8415-119
Referred to the House Committee on Ways and Means.
Sponsored by David Kustoff (R-TN)
What it does
This bill would increase the Section 199A deduction for qualified business income (QBI) from 20% to 23% for pass-through businesses such as sole proprietorships, partnerships, S-corporations, and LLCs. It would also expand the deduction to cover interest dividends from qualifying Business Development Companies (BDCs), modify the phase-in rules for higher-income taxpayers to reduce how quickly the deduction's limitations take effect, and reset the inflation adjustment baseline from 2018 to 2025. All changes would apply to tax years beginning after December 31, 2026.
Who benefits
Owners of pass-through businesses — including sole proprietors, S-corporation shareholders, and partners in partnerships — who report business income on their personal tax returns. Small business owners in particular, who are the bill's stated target. Higher-income pass-through business owners who would benefit from the modified phase-in rules, which reduce the rate at which limitations kick in. Investors in qualifying Business Development Companies (BDCs), which typically lend to small and mid-sized businesses. Indirectly, businesses that receive financing from BDCs, as the expanded deduction may increase capital flows into those vehicles.
Who is hurt
The federal government would collect less revenue, which could require offsetting spending reductions or increased borrowing. Taxpayers who earn wages or investment income (rather than pass-through business income) would not benefit and could bear indirect costs if the revenue loss is offset elsewhere. C-corporations, which are taxed at the corporate rate and do not use the Section 199A deduction, would face a widened competitive disadvantage relative to pass-through entities. Employees of businesses that do not benefit from the deduction structure may see no wage or economic pass-through effect.
Supporters argue
Supporters argue that the original 20% QBI deduction was designed to partially equalize the tax treatment of pass-through businesses with C-corporations after the 2017 Tax Cuts and Jobs Act reduced the corporate rate to 21%, and that raising the deduction to 23% would better align these rates. They contend that pass-through businesses represent over 95% of all U.S. businesses and employ roughly half the private-sector workforce, meaning the deduction directly supports job creation and economic activity at the small business level. Supporters also argue that the BDC expansion channels more capital to small and mid-sized businesses that lack access to public equity markets.
Opponents argue
Opponents argue that the Section 199A deduction disproportionately benefits high-income business owners rather than the small businesses the bill's title implies — the Tax Policy Center has estimated that the top 1% of earners capture a substantial share of QBI deduction benefits. They contend that raising the deduction from 20% to 23% would reduce federal revenue by tens of billions of dollars over a decade without a clear mechanism ensuring those savings translate into wages or job growth for workers, and that the modified phase-in rules specifically expand benefits for higher-income filers, further concentrating the tax advantage at the top of the income distribution.
Constitutional context
Revenue bills must originate in the House under the Origination Clause (Art. I, §7, cl. 1), which this bill satisfies. The bill modifies income tax deductions under the Sixteenth Amendment's authority to tax income without apportionment. No active constitutional tension is present — this is a straightforward modification of an existing statutory deduction within well-established congressional taxing authority.
Checks and balances
Congress gains authority to reduce tax liability for pass-through business owners; the IRS and Treasury implement the changes through regulations; the Joint Committee on Taxation scores the revenue impact; and Congress retains authority to modify or repeal the deduction in future legislation.
Historical precedent
The Section 199A deduction was originally created by the Tax Cuts and Jobs Act of 2017 at a 20% rate; this bill would be the first statutory increase to that rate since its enactment.