Small businesses support Section 199A reform and bottom-up tax benefits

With key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire this year, Congress must decide how it wants to move forward when it comes to the tax code. This is notable because any potential changes to our tax system would have a profound impact on small businesses. One provision set to expire is the Section 199A deduction that allows businesses that are pass-through entities to deduct up to 20% of their qualifying business income from their federal taxes. Additionally, TCJA lowered the corporate tax rate and substantially reduced individual taxes for the wealthy, significantly increasing the federal deficit. Seventy-four percent of small business owners agree that while tax cuts are important, lowering the federal deficit is also important. As federal policymakers debate the future of 199A and other TCJA provisions, it’s important that they keep the perspectives of small business owners in mind.

Small Business Majority’s new national poll reveals that 74% of small business owners support a policy that would allow business owners to deduct their first $25,000 in qualifying business income instead of the existing 20% deduction. This proposal, which would dramatically shift the benefit of the 199A deduction to the smallest business that would benefit most, is popular across party lines with the vast majority of Republicans, Democrats and independents supporting it. Additionally, entrepreneurs believe that the federal tax system favors large corporations over small businesses and that large corporations don’t pay their fair share of taxes. Small business owners believe that tax cuts should primarily benefit smaller businesses instead of larger firms, and that small business tax cuts allow entrepreneurs to reinvest in their businesses and create jobs.

These results come during a time of economic uncertainty in America. As small business owners struggle to navigate ever-changing tariffs and a decline in consumer confidence, it’s more important than ever that Congress delivers meaningful benefits for the smallest Main Street businesses through tax reform.

Key findings

• Instead of the current 20% deduction on qualifying business income (QBI) for “pass-through” businesses, 74% of small business owners support a policy that would allow business owners to deduct their first $25,000 of qualifying business income. Only 4% of small business owners oppose this policy.

Figure: Small business owners support replacing the 20% pass-through deduction with a simplified deduction of up to $25,000

• The overwhelming majority (87%) of small businesses agree that providing small businesses with tax cuts allows owners to reinvest in their companies and create more jobs. Meanwhile, only 43% of small businesses agree that providing larger firms with tax cuts allows them to create more jobs.
• Most small business owners say that tax cuts should primarily benefit smaller businesses, as opposed to the current system in which the vast majority of tax breaks flow to a small percentage of larger companies.
• More than three-quarters (76%) of small business owners agree that the tax system favors large corporations over small businesses like theirs. Forty-five percent strongly agree while only 9% think that the tax system does not favor large corporations.
• Nearly 7 in 10 (68%) entrepreneurs think that large corporations do not pay their fair share of taxes, while only 17% say they do.
• The Inflation Reduction Act increased tax credits that lower healthcare premiums for those buying health insurance in the Affordable Care Act marketplaces. With these additional tax credits set to expire at the end of 2025, a large majority (74%) of small business owners support extending them, while only 14% want to let them expire.
• The sample is politically diverse: 41% of respondents are/lean Republican, 36% are/lean Democrat and 21% are true Independents.