Small Business Tax Cut Act would raise key deductions for SMBs

Rep. David Kustoff (R-TN) introduced a bill to lower taxes on small businesses, targeting a critical deduction used by nearly 26 million businesses and building on a 2025 law that made the break permanent. But analysts warn the proposal carries a significant price tag that supporters would need to offset.

What it would mean for SMBs

The Small Business Tax Cut Act would raise the Section 199A qualified business income deduction from 20% to 23% for pass-through businesses, including sole proprietors, S corporations, partnerships, and family farms. More than 90% of U.S. businesses operate as pass-through entities.

“The Small Business Tax Cut Act sends a clear signal that Congress is serious about keeping Main Street competitive,” Kustoff said in a press release. “By expanding the 199A deduction to 23%, we are giving local business owners the flexibility to hire more workers and invest in their operations.”

The Tax Policy Center, a nonpartisan tax research organization, cautions that the proposal could be costly. If it moves through reconciliation, supporters would likely need to find an offset to pay for it. The existing 20% deduction already reduces federal tax revenues by an estimated $57 to $61 billion per year, according to the Joint Committee on Taxation.

Bill has broad industry support

Congress made the 20% deduction permanent in 2025, a move the National Federation of Independent Business called a landmark step that prevented a massive tax hike on small businesses. Small businesses are already responding by raising wages, offering bonuses, expanding benefits, and increasing capital investment, the organization says.

“Rep. Kustoff’s Small Business Tax Cut Act builds on this success and would provide 9 in 10 small businesses with tax cuts,” said Dylan Rosnick, principal of federal government relations at NFIB. “The legislation would also expand the deduction to small businesses currently prevented from using it.”

The bill also drew endorsements from the National Association of Home Builders, the Mortgage Bankers Association, the S Corporation Association, and the Tennessee Farm Bureau, among others.

An uncertain path

Despite broad industry support, the bill faces a difficult road to becoming law. Without Democratic backing, supporters are counting on a procedural workaround to get it across the finish line.

The bill carries six Republican co-sponsors and no announced Democratic support, leaving it short of the 60 Senate votes normally required to overcome a filibuster. Supporters are eyeing budget reconciliation, a procedural tool that lets Congress pass spending and tax measures with a simple 51-vote Senate majority. Republicans used that same tool in 2025 to pass the One Big Beautiful Bill, which made the 20% deduction permanent.

Timing adds another complication. Kustoff introduced the legislation the same week Senate Republicans launched a reconciliation effort to fund parts of the Department of Homeland Security, which has been shut down since February. Supporters hope to attach the tax provisions to that effort or to a subsequent reconciliation bill before Congress adjourns.