The SALT Ceiling and the SSTB Parity Crisis: Navigating Tax Policy Risks and Opportunities in 2025

The One Big Beautiful Bill Act, passed by the U.S. House of Representatives on May 22, 2025, has ignited a firestorm of debate over its treatment of pass-through entities (PTEs) and specified service trade or businesses (SSTBs). At the heart of this controversy is a stark disparity in SALT (State and Local Tax) deduction rules that threatens to reshape industries like accounting, healthcare, and law—while favoring C corporations. For investors, this legislative shift presents both risks and opportunities. Let's dissect the implications and map out actionable strategies.

The SALT Cap: A New Divide Between SSTBs and C Corps

The Act raises the SALT deduction cap to $40,400 for joint filers but introduces a phase-out for high-income taxpayers. However, the real battleground lies in how these rules apply to businesses.

• C Corporations: Continue deducting state and local taxes in full as business expenses.
• SSTBs (e.g., law firms, accounting practices, healthcare services): Must treat PTET (pass-through entity tax) payments as individually taxable income, subjecting them to the SALT cap at the owner level. This forces SSTB owners to absorb taxes that C corporations can deduct wholesale.

The result? A parity gap where SSTBs lose up to 30% of their deductible tax expenses compared to their C corporation competitors. For example, a law firm paying $50,000 in PTETs would see that amount counted against its owners' SALT caps, while a similarly sized C corp could fully deduct it.

The AICPA's Fight: Catalyst for Legislative Reversals?

The American Institute of CPAs (AICPA) has emerged as a vocal opponent of this disparity, warning of economic harm to critical service industries. Their advocacy centers on three demands:

1. Retain Entity-Level SALT Deductions for All PTEs: The AICPA argues that current rules (allowing 36 states to shift SALT burdens to entities) preserve fairness. The Act's exclusion of SSTBs risks stifling growth in professions like accounting and healthcare.
2. Ban Contingent Fees in Tax Prep: A push to eliminate clauses enabling fee-sharing tied to tax refunds—a move the AICPA links to fraud risks.
3. Revive NOL Flexibility: Allowing excess business losses to offset all income, not just business income, to prevent “perpetual” tax disadvantages.

The AICPA's lobbying, backed by its 2025 Tax Legislative Compendium, could pressure the Senate to amend the bill. Investors should monitor Senate Finance Committee hearings (track via ) for clues on whether SSTB protections will materialize.

Investment Playbook: Exploit the Parity Gap Now

The Act's provisions create clear winners and losers. Here's how to position your portfolio:

Short-Term Risks: SSTB-Heavy Sectors

• Healthcare Services: Practices classified as SSTBs may see reduced cash flow as owners hit SALT caps.
• Professional Services: Accounting and legal firms could face valuation dips if clients or partners exit due to tax burdens.

Immediate Opportunities: C Corporations in SSTB Sectors

Invest in SSTB-related businesses structured as C corps to avoid SALT caps. For example:
- Healthcare Tech: Companies like Cerner (CERN) or Epic Systems (private but investable via ETFs like XLV) may thrive as healthcare providers pivot to C corps to preserve deductions.
- Financial Services: Firms like BlackRock (BLK) or Goldman Sachs (GS), which operate in non-SSTB sectors, benefit from full SALT deductions while SSTB peers struggle.

Long-Term Plays: AICPA-Favored Sectors

If the Senate adopts the AICPA's recommendations:
- Real Estate: The Act's $750,000 mortgage interest cap and PTET restrictions could make entity-level deductions for property taxes critical. Realty Income (O) or REITs with diversified tax structures may outperform.
- Manufacturing & Tech: Non-SSTB industries retain favorable QBI deductions (now 23%) and are less exposed to SALT caps. Apple (AAPL) or General Electric (GE) could see sustained growth.

Final Call to Action: Act Before the Senate Rules

The One Big Beautiful Bill Act is a ticking clock for SSTB sectors. While the AICPA's advocacy buys time for legislative adjustments, investors must act now:

1. Reduce exposure to SSTB-heavy stocks (e.g., healthcare services ETFs like SPH) while they face valuation pressures.
2. Increase stakes in C corporations within SSTB industries to exploit tax advantages.
3. Diversify into AICPA-backed sectors (e.g., tech, real estate) that benefit from permanent policy wins like extended QBI deductions.

The tax parity crisis isn't just about policy—it's a catalyst for market shifts. Position your portfolio now, and capitalize on the coming legislative tide.

Final Note: Monitor Senate amendments closely. A reversal on SSTB SALT restrictions could trigger a rebound in affected sectors. Stay agile—this is a game of tax policy chess.