Tax break expansion for small business and professionals

[UNITED STATES] Congress is considering a major tax overhaul that could reshape benefits for millions of small businesses and independent workers. The House-approved One Big Beautiful Bill Act proposes making the Qualified Business Income (QBI) deduction—a 20% tax break for pass-through entities like freelancers, contractors, and S-corporations—permanent and expanding it to 23% starting in 2026. Currently set to expire in 2025, the QBI deduction phases out for single filers earning over $197,300 and married couples above $394,600, with stricter limits for professionals like lawyers and doctors.

The bill’s changes could particularly benefit high-earning “specified service trade or business” (SSTB) owners—such as consultants and financial advisors—by adjusting phase-out rules that currently block deductions entirely above income thresholds. Over 25 million taxpayers claimed the deduction in 2022, up 37% since its 2018 debut, though critics argue it disproportionately advantages top earners.

Implications for Businesses and Policy

For small businesses and gig workers: The expanded deduction could lower effective tax rates from 29.6% to 28.5% for pass-through entities, freeing capital for hiring or reinvestment. However, middle-income freelancers might see limited gains due to unchanged phase-out thresholds not indexed to inflation.

For high-earning professionals: Doctors, lawyers, and financial advisors in SSTBs stand to gain the most from revised phase-out calculations. Under current law, they lose the deduction entirely above income limits, but the bill allows partial claims—a shift analysts call a “tailwind for elite service providers”.

Fiscal and equity concerns: Studies project the changes could reduce federal revenue by 1.9% annually long-term while amplifying wealth inequality—shifting resources from the bottom 50% to the top 1% of earners. Critics argue the $700B+ cost over a decade could outweigh growth benefits, especially given stagnant wage trends for non-business-owning workers.

What We Think

While streamlining tax relief for Main Street businesses has merit, this proposal risks deepening economic divides. “Most benefits flow to taxpayers with a lot of income,” notes the Tax Foundation—a reality at odds with rhetoric about supporting small enterprises. The SSTB rule adjustments feel particularly tone-deaf amid mounting scrutiny of loopholes for affluent professionals.

That said, making the QBI deduction permanent could provide stability for 95% of U.S. businesses structured as pass-throughs. A smarter approach might pair extension with income caps or reinvestment requirements to ensure savings fuel job growth rather than wealth consolidation. As lawmakers debate, the key question remains: Is this a small-business lifeline or a Trojan horse for top-tier tax cuts? The data leans toward the latter.