ABSTRACT
The qualified business income deduction under Section 199A, which was enacted as part of the Tax Cuts and Jobs Act of 2017, was intended to provide a reduction in federal taxes for businesses operating as passthrough entities commensurate with the rate reduction allowed to corporations. While the Section 199A deduction does achieve its intended objective of reducing taxes on passthrough entities, it does so with unnecessary complexity. In this article, we briefly review the rules governing the deduction and evaluate it critically against nine principles of good tax policy. Our evaluation reveals shortcomings in the structure of the deduction that prevent it from achieving the goals of equity, certainty, convenience, administrative effectiveness, simplicity, neutrality, efficiency, compliance, and revenue predictability. However, with respect to the principle of visibility, the deduction succeeds.
