The Section 199 deduction — a special 9% freebie deduction off the top of “production” income — is one of the worst ideas enacted in the tax law since the Section 409A rules. Section 199 taxes income from manufacturing, farming, construction, and related architect and engineer services, at a lower rate than other income. The arbitrary favoring of one way to make a living over another is economic illiteracy and a tax compliance headache. It ignores the many supporting services – transportation, human resources, logistics — to say nothing of accounting – that gets stuff from the factory to you.
So tax nerds with long memories can smile a bit at defeat in a primary this week of Congressman Donald Manzullo. The Illinois Republican lost after being redistricted to the same district as another congresscritter. Mr. Manzullo “led the charge” to get Section 199 enacted in 2004.
He lost after House Majority Leader Eric Cantor endorsed his Tea Party-linked opponent (via Instapundit). So maybe the Section 199 deduction might go away? Maybe Congress will swear off micromanaging the economy through the tax law? Don’t get your hopes up.