In December, Mother Jones published a roundup of seven things Donald Trump’s so-called Department of Government Efficiency could target if Elon Musk and his “Muskrats”—as critics have dubbed them—truly wanted to cut wasteful spending. On January 23, Sen. Elizabeth Warren (D-Mass.) sent Musk a letter with a long list of additional waste-cutting ideas. Musk will almost certainly ignore both lists.
But both cited a gratuitous provision of the 2017 Tax Cuts and Jobs Act (TCJA) that Sens. Ron Johnson of Wisconsin and Steven Daines of Montana insisted upon in exchange for their votes. Set to expire this year, this generous deduction, which appears to have benefitted Johnson personally, is a windfall for the owners of “pass through” entities.
A Democratic aide who works with the House Ways and Means Committee told me that extending this deduction is a must-have for the panel’s Republicans, who hope to renew most, if not all, of the expiring TCJA provisions—and more. Indeed, the budget resolution that House Republicans released on February 12 called for the gutting of federal expenditures and instructed Ways and Means to identify up to $4.5 trillion in tax cuts—which, if history is any indication, will come nowhere near paying for themselves.
As for the pass-through break, well, most US private businesses are pass-throughs. Sole proprietorships, partnerships, limited liability companies (LLCs), and S-corporations fall under that umbrella, which includes major accounting, law, and wealth management firms; medical practices; private equity partnerships; hedge funds; and real estate companies like the Trump Organization.
“They are not contemplating, nor are we expecting them to contemplate, any kind of bipartisan tax bill.”
Pass-throughs are not subject to a corporate income tax. Instead, the owner-partners are taxed on their share of the proceeds at ordinary individual rates. The 2017 tax bill signed by Donald Trump allows them to deduct up to 20 percent of their business income from the taxable earnings they report to the IRS.
It’s a very lucrative break, which is why K Street’s usual suspects are lining up behind bills pending in the House and Senate to make the pass-through provision, Section 199A, permanent. The backers, a who’s who of pro-business groups, make it sound downright un-American to not support an extension of the break, which S Corporation Association president Brian Reardon deemed “critical for millions of small- and family-owned businesses.”
But such language is misleading. By the government’s definition, a “small business” can have as much as $47 million in revenues and as many as 1,500 employees. As for “family-owned,” well, that includes, for example, the Trump Organization (which was convicted of tax fraud in 2022) and Uline, the Wisconsin pass-through business operated by billionaire Trump supporters Elizabeth and Richard Uihlein.
“The pass-through deduction is emblematic of the tax reform package as a whole: More tax cuts for the rich, masquerading as tax cuts for the little guy,” says attorney Steve Rosenthal, a tax expert and former senior fellow at the Urban-Brookings Tax Policy Center.
The Uihleins have been enthusiastic supporters of Sen. Johnson, whose advocacy for the pass-through deduction has saved the couple enormous sums over the past eight years. Ditto Diane Hendricks, one of the nation’s richest women and owner of the pass-through company ABC Supply. Hendricks, also a loyal Trump donor, pocketed an extra $36 million the very first year the deduction took effect, ProPublica reported.
Contrary to the pro-business propaganda, Section 199A is primarily a giveaway to America’s most wealthy. In 2019, according to an analysis by the nonpartisan Joint Committee on Taxation (see Table 12), nearly two-thirds of the $43.6 billion break that year went to households with incomes of at least $410,000, and more than half of the total went to families making $819,700 or more—putting them squarely within the top-earning 0.5 percent of the population. Only 13 percent of the break’s value went to households earning less than $164,000.
These handouts add up. Extending the current pass-through deduction will cost the federal government $684 billion over 10 years, the Congressional Budget Office projects (p. 13). The nonprofit Committee for a Responsible Federal Budget puts the figure even higher: $780 billion.
Wasteful as it is, the Republicans are not inclined to end this gravy train. A broad menu of options distributed to Republican members of the House Budget Committee didn’t even raise it as a deficit-cutting possibility.
Johnson—who reported between $100,000 and $1,000,000 in rental income from his family’s commercial real estate LLC for 2023—is hardly the only tax committee member who stands to gain from extending the break. Based on an analysis of 2023 financial disclosures shared with Mother Jones by a progressive economic think tank, at least a dozen Republicans serving on the House Ways and Means and Senate Finance committees reported $50,000 or more in what could potentially qualify as pass-through income—some reported millions of dollars in such income.
A smaller number of Democratic members also stand to benefit, but the Ways and Means aide told me that the Republicans are drafting their “big, beautiful bill” without any Democratic input. “They are not contemplating, nor are we expecting them to contemplate, any kind of bipartisan tax bill,” the aide said. “They are going to do this on their own.”
