Debate: Should Congress Cap the Pass-Through Tax Deduction for Businesses?

The 2017 tax overhaul significantly reformed the tax rules governing pass-through entities, including partnerships and sole proprietors. These small business reforms allow business owners to deduct up to 20% of qualified business income (QBI), subject to certain restrictions.

However, there is currently no limit on the amount of the deduction that could be allowed. Proposals would cap the value of the deduction that could be taken at $500,000 for joint returns, $250,000 for married taxpayers filing separately, $10,000 for trusts and $400,000 for other filers.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about proposals to reform the tax rules applicable to pass-through entities by limiting the value of the QBI deduction.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: The current system does little more than pad the pockets of the wealthiest American business owners. We should reform the current Section 199A deduction rules to benefit the taxpayers it was intended to benefit — small-business owners who aren’t raking in millions of dollars in profits each year. Changing the law to eliminate some of the complexities that also make it difficult for small business owners to know whether they’re getting it right is also a step in the right direction.