Crypto Industry Intensifies Lobbying Efforts Ahead Of Tax Policy Debate In Congress

The cryptocurrency industry is intensifying its lobbying efforts in a bid to influence key policy decisions as Congress gears up for a critical tax policy debate. The move comes as much of the 2017 GOP tax law will expire at the end of 2025.

One of the primary focuses of the debate is the fate of the pass-through deduction, a provision that has become a cornerstone for many businesses in the US. The deduction allows qualified businesses to deduct 20% of their income.

Before the 2017 tax law, these businesses, which include sole proprietorships, small enterprises, and large S corporations, were subject to regular income taxes. However, the introduction of the pass-through deduction provided substantial relief.

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Pass-Through Deduction Benefits Small Businesses

Garrett Watson, a senior policy analyst at the Tax Foundation, said in a recent interview that the pass-through deduction benefits millions of small businesses across the country.

“Pass-through businesses, ranging from small mom-and-pop shops to large partnerships, can take advantage of this deduction,” Watson explained. “These businesses are crucial to the U.S. economy, and the deduction plays a vital role in their financial health.”

The US Chamber of Commerce is a strong proponent of extending the pass-through deduction, emphasizing its importance for the private sector.

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Some laws have been phased out, some are permanent, but MOST will EXPIRE in 2025…

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— Zach Melloh, CFP® (@zachmelloh26) June 26, 2024

Neil Bradley, the Chamber’s executive vice president and chief policy officer, pointed out that approximately 22.5 million pass-through entities have utilized the 20% credit, employing nearly half of the entire private-sector workforce.

The Chamber warns that allowing this deduction to expire could lead to a significant tax increase for affected business owners, with top tax rates potentially rising from 29.6% to 39%.

The pass-through deduction was initially created to ensure tax parity between pass-through businesses and large corporations, known as C corporations.

In 2017, when Congress lowered the corporate tax rate from 35% to 21%, lawmakers introduced the pass-through deduction to prevent a mass migration of businesses seeking to reclassify as C corporations to benefit from the lower tax rate.

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Pass-Through Deduction Faces Criticism for Complexity

Despite its benefits, the deduction has faced criticism for its complexity and uneven distribution of advantages. Chye-Ching Huang, executive director of New York University’s Tax Law Center, noted that the deduction’s complexity has led to some business owners exploiting the system.

Additionally, the deduction is disproportionately beneficial to high-income businesses. Samantha Jacoby, deputy director of federal tax policy at the Center on Budget and Policy Priorities, said that over half of the deduction’s benefits go to business owners with $1 million in income.

In contrast, average business owners receive far smaller deductions.

Notably, the potential expiration of the pass-through deduction also raises significant concerns about its impact on the federal budget. Originally projected to cost around $400 billion, an extension could add another $700 billion to the deficit over the next decade.

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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.