The impending debate over the expansive tax breaks pushed by Senate Republicans showcases a disturbing trend in American tax policy—the prioritization of the wealthy under the guise of fostering small business growth. At the center of this political maneuvering is the Section 199A deduction for Qualified Business Income (QBI), which allows small business owners, freelancers, and those in the gig economy to deduct up to 20% of their eligible revenue from taxation. While the House Republicans’ “One Big Beautiful Bill Act” proposes to make this deduction permanent and increase the maximum relief to an astounding 23% by 2026, this so-called legislation may ultimately serve the interests of wealthier individuals far more than it would benefit the working class it purports to assist.
This deduction was first introduced under the Tax Cuts and Jobs Act of 2017, a bill that was already riddled with complications and favoritism. The QBI deduction has been touted as a relief mechanism for the very backbone of our economy—small businesses. However, an examination of the implementation reveals a glaring discrepancy: the considerable benefits flow predominantly to those who already possess significant wealth or income. For instance, in 2022, approximately 25.6 million individuals claimed the QBI deduction, a significant increase from 18.7 million in 2018. While this seems encouraging at first glance, it masks the reality that those in low-income brackets are often left out in the cold.
Inconsistency and Favoritism
A critical flaw within this proposal is its uneven benefits distribution, which raises serious questions about equitable tax policy. Critics, like Erica York from the Tax Foundation, have pointed out that the primary beneficiaries of the QBI deduction are not the ordinary American workers, but rather high-earning individuals who operate businesses as pass-through entities. The irony here is palpable; while intended to boost small business activities, this deduction is skewed to elevate the financial well-being of affluent individuals, including professionals like doctors, lawyers, and finance experts—those who form the so-called “specified service trade or business” (SSTB).
This favoritism extends to proposed changes in the phaseout calculations, which would allow higher-income SSTB owners to benefit significantly more from this deduction. As tax policy expert Chye-Ching Huang notes, the modifications suggested could lead to a scenario where the wealthy gain more favorable tax treatment relative to their earning brackets, thus further widening the income inequality gap that ravages our society. The argument that these tax changes could eventually “trickle down” to the working class is increasingly dubious, especially given the historical context of similar policies.
The Dangers of Normalizing Income Inequality
As Congress gears up to discuss these tax breaks, we must question the ethical implications of normalizing income inequality through legislation designed to appease affluent business owners while ignoring the financial struggles of regular workers. It is essential to consider how these policies perpetuate a system that disproportionately aids the rich while leaving everyone else behind. Why do we, as a society, continue to reinforce a tax structure that rewards high earners rather than invests in the lower-income brackets that drive actual economic growth and development?
Moreover, such tax incentives may foster a dangerous ‘winner-takes-all’ mentality in the market. By structuring tax benefits around pass-through entities, we inadvertently encourage a financial ecosystem that rewards those who already enjoy privilege and opportunity, thus inadvertently stifling innovation and entrepreneurial spirit among individuals from lower socioeconomic backgrounds.
A Call for Responsible Tax Reform
Rather than extending and enhancing a tax deduction that primarily champions those already seated comfortably atop the economic ladder, we should advocate for a more holistic tax reform that genuinely assists working families and small business operators without significant income. Policymakers should focus on incentivizing businesses that invest in people and infrastructure rather than simply lining the pockets of the elite. True economic health lies in fostering a landscape where individuals can thrive irrespective of their starting point, not one where disparity is a systemic feature of our tax structure.
In light of these complex issues and the apparent inequities embedded within the proposed tax plan, we must demand a tax policy that reflects true fairness, prioritizes investment in our communities, and works tirelessly to uplift those at the bottom rather than further enrich those at the top. The conversation on tax reform should not merely revolve around dollar amounts and percentage points but should fundamentally engage the values of equity and justice that our society professes to uphold.