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Democrats and Policy Analysts Tell House: Pass-Through Deduction Skews to Wealthy; Tariffs and Premium Hikes Eat Small-Business Gains
Summary
During the April 15 hearing, Democrats and a Center for American Progress analyst said data show the pass-through deduction mainly benefits higher-income filers and that tariffs and the loss of enhanced premium tax credits have raised costs for many small businesses, potentially offsetting tax gains.
A central strain of testimony at the House Small Business Committee hearing focused on the distributional effects of the pass-through deduction and the real-world offsets that critics say blunt its benefits.
Ranking Member Velázquez told the panel the pass-through component of the Working Families Tax Cuts Act ‘‘costs nearly $736 billion over the next 10 years’’ and argued the top 1% receives a disproportionate share of benefits. "For most middle-class small business owners, that premium increase alone wipes out the entire benefit of the pass-through deduction," she said, referring to higher marketplace premiums after the expiration of enhanced premium tax credits.
Michael Negron of the Center for American Progress testified that the law’s benefits have disproportionately flowed to "wealthier and larger businesses," and raised specific cost offsets: higher tariffs, spiking fuel prices tied to a war in Iran, and the end of enhanced premium tax credits. "Your typical small business importer ... paid $306,000 more in tariffs from March of 2025 to February of 2026 compared to the previous year," he said, and he cited studies showing only a limited share of pass-through dollars reach lower-income small businesses.
Supporters and some witnesses countered that many small firms—especially pass-through entities such as S corporations and sole proprietorships—claim the deduction and that permanence reduces uncertainty and encourages investment. Garrett Watson of the Tax Foundation emphasized that permanence for expensing and R&D increases long-run output and that many small businesses rely on those rules to make capital investments.
Committee members asked witnesses to compare empirical estimates. Witnesses referenced Joint Committee on Taxation, Congressional Research Service, academic literature (a Journal of Public Economics study), and proprietary analyses; no single estimate commanded full, bipartisan acceptance during the hearing. Members on both sides asked for further written submissions and data to reconcile competing figures.
The hearing did not yield a legislative outcome; instead it underscored a partisan and empirical divide about who benefits from the law and how external policies—tariffs, health premium rules—affect small-business finances.
