HR-8755-119
Referred to the House Committee on Ways and Means.
Sponsored by Carol Miller (R-WV)
What it does
This bill would amend Section 199A of the Internal Revenue Code to increase the qualified business income (QBI) deduction for "qualified domestic manufacturers" from 20% to 30%. To qualify, at least 85% of a taxpayer's combined qualified business income must come from manufacturing tangible property, and at least 20% of the cost of goods sold must be attributable to labor and overhead expenses incurred within the United States. The bill would also modify how taxable income is calculated for purposes of the deduction, including excluding charitable contribution deductions from the taxable income base for itemizing taxpayers, and would apply to tax years beginning after December 31, 2025.
Who benefits
Pass-through domestic manufacturers (sole proprietors, S-corporations, partnerships, and LLCs) that meet the 85% income and 20% domestic labor/overhead thresholds. Small and mid-sized U.S. manufacturers in sectors like food processing, textiles, machinery, and consumer goods. Workers at qualifying manufacturers, who may benefit if the deduction encourages domestic production and hiring. Rural and industrial communities where manufacturing is a primary employer. Taxpayers who itemize and make charitable contributions, who would see a slightly more favorable taxable income calculation.
Who is hurt
The federal government would collect less tax revenue, which could affect funding for other programs. Manufacturers that rely heavily on foreign labor or overseas supply chains and cannot meet the 20% domestic labor/overhead threshold would be excluded from the enhanced deduction. Service-based pass-through businesses that currently use the standard 20% QBI deduction would not benefit. Foreign manufacturers and importers competing with domestic producers could face a relative competitive disadvantage. C-corporations are not eligible for the QBI deduction at all and would see no benefit.
Supporters argue
Supporters argue that the existing 20% QBI deduction, enacted in the 2017 Tax Cuts and Jobs Act, does not specifically reward domestic production, and that a targeted 30% rate would create a meaningful incentive to keep manufacturing jobs and supply chains in the United States. They contend that domestic manufacturing supports national security, reduces dependence on foreign suppliers, and generates well-paying jobs in communities that have experienced industrial decline — and that a 10-percentage-point increase in the deduction rate directly improves after-tax returns for qualifying businesses, making domestic investment more competitive.
Opponents argue
Opponents argue that sector-specific tax preferences distort market allocation of capital, rewarding politically favored industries rather than the most productive uses of investment. They contend that the 20% domestic labor/overhead threshold is low enough that many businesses already meeting it would receive a windfall rather than change their behavior, while businesses with genuinely global supply chains — which may still employ large U.S. workforces — would be arbitrarily excluded. Critics also note that the revenue cost of expanding the deduction adds to the federal deficit without a guaranteed corresponding increase in domestic employment or output.
Constitutional context
This bill modifies an existing income tax deduction under the Sixteenth Amendment, which grants Congress broad authority to tax income without apportionment. As a revenue-related bill introduced in the House, it complies with the Origination Clause (Art. I, §7, cl. 1). The Taxing and Spending Clause (Art. I, §8, cl. 1) requires tax laws to be geographically uniform, and the domestic labor/overhead requirement could theoretically raise a uniformity question, though courts have generally upheld industry-specific tax provisions under this standard.
Checks and balances
Congress reduces federal revenue through a targeted deduction; the IRS and Treasury Department implement the rules and issue regulations defining qualifying thresholds; courts retain authority to review the uniformity of the tax treatment under the Taxing and Spending Clause.
Historical precedent
The Section 199 Domestic Production Activities Deduction (DPAD), enacted in 2004 and repealed by the 2017 Tax Cuts and Jobs Act, similarly provided a preferential deduction rate (up to 9%) for income from domestic manufacturing and production activities, and was upheld without significant constitutional challenge.