Pass-through Business

Treasury’s New Pass-Through Rules Double Down On The Deduction’s Regressivity

Treasury’s New Pass-Through Rules Double Down On The Deduction’s Regressivity

The Tax Cuts and Jobs Act (TCJA) contains a special 20-percent individual income tax deduction for owners of pass-through businesses that was always going to disproportionately benefit the wealthy. The Joint Committee on Taxation projected that half the benefits of the provisions would go to millionaires and only a small fraction would help taxpayers making less than $200,000. But now Treasury has proposed new rules to fill in key details for the pass-through deduction, which make it harder for moderate-income employees to lower their taxes by becoming a contractor while making it easier for many high-income owners of service businesses to shrink their tax bill.