Permanent Pass-Through Business Tax Cut

Summary#

This bill would cut taxes for many business owners and make those tax cuts permanent. It increases and broadens the “qualified business income” (QBI) deduction for pass‑through businesses and lets companies change their legal form without a tax hit if nothing else changes. It also repeals the federal estate tax while keeping the “step‑up in basis” for inherited assets. Most changes would start with the 2025 tax year.

• Makes the QBI deduction permanent and much larger: 43% of business income in 2025, and 47% starting in 2026.
• Targets a top tax rate of about 21% on qualified business income, to match the 21% corporate rate.
• Removes limits tied to wages or equipment and lets high‑earning professionals (like doctors and lawyers) use the deduction.
• Allows tax‑free changes in business structure (for example, corporation to LLC) if owners, ownership shares, and assets stay the same.
• Repeals the federal estate tax for deaths after 2024 and keeps stepped‑up basis for heirs.

What it means for you#

• Business owners and self‑employed (sole proprietors, partners, S‑corp owners)

  • Bigger and permanent deduction on business profits. The top tax rate on this income would be about 21%.
  • Simpler rules: no more tests tied to W‑2 wages or property. More owners qualify.
  • Starts for tax years beginning in 2025.
  • Does not apply to wages you pay yourself as an employee. Payroll and self‑employment taxes still apply as today.

• High‑earning professionals (healthcare, law, accounting, consulting, finance, etc.)

  • You could claim the QBI deduction regardless of income. The current limits that phase you out would be removed.

• Employees

  • No direct change. Regular wages do not qualify for the QBI deduction.
  • Whether you are treated as an employee or an independent contractor affects eligibility.

• Businesses considering restructuring

  • You could change legal form (for example, C‑corp to S‑corp or LLC, or vice versa) without a tax bill if owners, their shares, and assets don’t change (other than very minor asset changes).

• Heirs and families with large estates

  • No federal estate tax for deaths after 2024.
  • Heirs would still get a “step‑up in basis,” which means inherited assets are reset to current market value for capital gains tax.

• Farmers and cooperative members

  • The special deduction tied to cooperative payments is set at 9% of the qualified business income allocable to those payments.

Expenses#

No publicly available information.

Proponents' View#

• Lowers taxes for small businesses so they can invest, hire, and raise pay.
• Aligns the top tax rate on business profits with the 21% corporate rate, creating a level playing field.
• Makes the rules permanent and simpler by removing wage/property tests and service‑business limits.
• Lets companies pick the business structure that fits them best without a tax penalty.
• Repeals the estate tax to help family businesses and farms stay in the family without forced asset sales.
• Keeps step‑up in basis so heirs are not burdened with tracking old purchase prices.

Opponents' View#

• Most of the tax cuts would go to high‑income owners, including large pass‑throughs (e.g., law, finance, and consulting firms), not just “small” businesses.
• Creates a bigger gap between taxes on business profits and wages, which could be seen as unfair to regular workers.
• May encourage shifting income from wages to business profits or moving workers to contractor status to get the lower rate.
• Repealing the estate tax mainly benefits very wealthy estates and, with step‑up kept, reduces taxes on large inheritances.
• Likely reduces federal revenue by a large amount, which could increase deficits or pressure other programs or taxes.