Revisiting the Tax Treatment of Pass-Through Businesses: A Panel Discussion

Alex Brill and Kyle Pomerleau | AEI Event

Event Summary

On October 3, AEI’s Alex Brill and Kyle Pomerleau hosted a panel of experts to discuss the tax treatment of pass-through businesses and opportunities for reform.

George Callas of Arnold Ventures began with remarks on the historical and political context that resulted in the Section 199A deduction for pass-through firms. He recalled from his time as senior tax counsel in the US House of Representatives the complexities surrounding the issue of tax rate parity.

Mr. Brill then moderated a panel featuring Katherine Lim from the Federal Reserve Bank of Minneapolis, EY’s Robert Carroll, and Mr. Pomerleau. Dr. Lim discussed her research on short-run business responses to 199A. She and coauthors find no increase in 2018 in owner’s income eligible for the deduction, no appreciable increases in independent contracting, and no detectable changes in real economic activity. Dr. Carroll described the significant economic footprint of the pass-through sector and the results of his 2019 study on the Tax Cuts and Jobs Act’s impact on the pass-through sector. Mr. Pomerleau presented estimates from his new AEI report, “Section 199A and ‘Tax Parity.’” He finds that under current policy, the tax code favors pass-through businesses.

The event concluded with a brief discussion and audience questions.

Event Description

In 2017, the Tax Cuts and Jobs Act (TCJA) included a new 20 percent deduction for pass-through business income, Section 199A. Supporters argue that the deduction provides rough “parity” between pass-through businesses and C corporations. Critics argue it is an unnecessary and unfair tax break. Lawmakers will need to revisit this provision and other major components of the TCJA, as it is scheduled to expire in 2026. Does the tax code need a special deduction for pass-through business income? Should lawmakers extend the deduction, allow it to expire, or reform it? Should lawmakers consider more fundamental reforms to the tax treatment of businesses?

Please join AEI as a panel of experts discusses opportunities for lawmakers to reform the tax treatment of businesses.

See more about the event here.