Debate: Is the 20% Business Income Deduction Worth It?

Byrnes: Without the Section 199A deduction, small-business owners would be making choices with respect to choice of entity that are entirely based on federal tax issues, rather than the benefits of the business structure itself and the needs of the business. That’s bad for small-business owners, of course, but it also damages the economy as a whole. 199A was a necessary part of the puzzle with respect to tax reforms designed to boost business and strengthen the economy.

Bloink: The rules governing the Section 199A deduction are complicated and can easily be manipulated by high-net-worth taxpayers. While I’m not suggesting that we allow the 199A deduction to expire entirely, 199A was never intended to be a tax loophole for the wealthiest Americans to use as they please. Unfortunately, that’s how it’s often been used by wealthy Americans seeking to minimize their tax liability. Change is necessary.

Byrnes: In the end, without Section 199A, many small-business owners would probably have been forced to deal with the traditional corporate structure in order to be taxed fairly, which results in double taxation and isn’t really necessary for smaller businesses with less complex operations. Section 199A is important because it essentially works to level the playing field, at least from a pure tax perspective, between traditional C corporations and pass-through entities. The law already contains built-in income thresholds designed to prevent abuse.

Bloink: We need to impose clear and airtight income limits. As the rule stands, exceptions and qualifications currently exist to allow the wealthiest taxpayers to manipulate their situations to benefit from the deduction rather than paying their fair share.