What’s The Section 199 Tax Deduction?


President Trump and congressional Republicans contend they have dual categorical goals as they work to renovate a taxation code. One, reduce taxation rates. And two, get absolved of special deductions and exemptions, things that if we don’t like them, we call loopholes. Jacob Goldstein from a Planet Money podcast has a story of one reduction that’s set to be eliminated.

JACOB GOLDSTEIN, BYLINE: One of a few deductions that is indeed mentioned by name in a Republican’s central taxation horizon is called Section 199. It was combined by Congress in 2004 mostly as a mangle for manufacturers – we know, companies where American workers make genuine stuff. A few years after Section 199 became law, a taxation counsel named Ken Silverberg got a call from a company.

KEN SILVERBERG: They would buy crackers, cookies, candies and arrange them in an artistic and pleasing approach and hang them with appealing bows.

GOLDSTEIN: The association done present baskets.

SILVERBERG: The CFO went to a taxation conference, and he listened some orator articulate about this Section 199 reduction that was accessible for companies that did manufacturing. And he says, because can’t we use that?

GOLDSTEIN: And Silverberg says we can. After some behind and onward between a association and a IRS, a box winds adult in court. The lawyers for a IRS said, come on. These guys are literally only putting cookies and crackers and booze into a basket. That’s not manufacturing. And Silverberg and his colleagues argued, approbation it is.

SILVERBERG: It looks only like a public line in any factory. There’s forklift trucks pushing opposite a floor, bringing things to a commencement of a public line, lines of workers sitting there, putting things together.

GOLDSTEIN: The decider agrees with a present basket company. The association gets a production deduction. Lots of other companies explain this as well. Starbucks claims it for roasting coffee beans. Dentists explain it for creation crowns. This is what happens with deductions. Congress opens a small doorway in a taxation formula for some specific group, and afterwards everybody calls their taxation counsel and says, hey, get me in that door. So that taxation horizon a Republicans expelled this tumble says a Section 199 deduction, quote, “will no longer be necessary.”

Eliminating Section 199 would lift only underneath $200 billion in taxation revenues over 10 years. That is not scarcely adequate on a possess to make adult for a low cut in taxation rates that Republicans are also proposing. But a Republican horizon also says, quote, “numerous other special exclusions and deductions will be repealed or restricted.” Michael Mundaca worked on taxes in a Obama administration. He now works for a accounting organisation EY. we asked him about removing absolved of those other deductions.

MICHAEL MUNDACA: This is going to be tough. Whenever a House comes out with some-more specifics around this – and it could be as shortly as after this month – afterwards you’ll see a high-gear expostulate to get those special supplies confirmed in whatever new taxation complement we breeze adult with.

GOLDSTEIN: we mean, that is, like – if you’re a association and we occupy a lobbyist, that is a impulse when we wish a lobbyist to do everything.

MUNDACA: This is their Super Bowl.

GOLDSTEIN: This is their Super Bowl (laughter).

Bottom line, Mundaca says, he does design Congress to cut taxation rates and to get absolved of Section 199, though a lot of other deductions and exemptions are expected to hang around. Jacob Goldstein NPR News.

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