Companies Push Permanent Tax Extenders in Chaotic Congress

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Oct. 8 — Lobbyists for U.S. manufacturers renewed their push to make at least a few expired business-friendly tax benefits permanent when Congress considers the provisions' future.

Lawmakers have given little sign of reaching such a deal soon, however, and Republicans' difficulties picking a successor to House Speaker John A. Boehner (R-Ohio) injected further uncertainty into the legislative agenda for the rest of 2015.

The National Association of Manufacturers and other groups wrote to Congress Oct. 8, urging lawmakers to extend expensing provisions in Section 179 of the U.S. tax code, bonus depreciation and the accelerated use of alternative minimum tax credits in lieu of bonus depreciation. Representatives from NAM also met with reporters, touting a 2014 economic study showing the benefits to manufacturers from bonus depreciation in particular.

“The current uncertainty about these tax policies is discouraging investment in the United States and, in some cases, keeping companies on the sidelines,” said the group, including such companies as AT&T Inc., Caterpillar Inc. and Lockheed Martin Corp.

Promise for Expensing?

The provisions in Section 179 would seem to have the best odds for a permanent extension, supporters said, given their appeal to many small businesses. Other provisions such as bonus depreciation are a harder sell to congressional Democrats and the White House as anything other than a temporary extension, due to the cost in forgone tax revenue.

The Section 179 provision is especially appealing because its effects can be shown easily through purchases of equipment that is placed in service on site, whereas tax provisions based on income can raise questions about where income is actually located—and invite accounting maneuvers, said Eric Zwick, an economist at the University of Chicago.

His study on bonus depreciation is a highlight of the NAM's pitch to Congress. Zwick was doctoral student at Harvard University when he published the study with Harvard economist James Mahon.

Zwick and Mahon found that small firms, non-dividend payers and firms with low levels of cash respond more strongly than other companies to bonus depreciation. In addition, they said, firms respond in part by issuing debt and reducing dividends. Bonus depreciation raised investment by 17.3 percent from 2001 to 2004, and 29.5 percent from 2008 to 2010, they said.

Making bonus depreciation permanent would cost the government $280.7 billion in forgone tax revenue from 2015 to 2015, the congressional Joint Committee on Taxation has said (181 DTR G-6, 9/18/15).

While the NAM is pressing for some provisions to be made permanent, temporary extensions remain most likely, Carolyn Lee, senior director of tax policy at the organization, told Bloomberg BNA. The length of extensions depends on negotiations among House, Senate and Obama administration leaders over spending and other issues not likely to be resolved until late in the year.

Give-and-Take

If last year's experience is any indication, the Obama administration may be willing to accept some permanent extenders as long as Democratic priorities such as the child tax credit, the earned income tax credit and the American Opportunity Tax Credit are in the mix. Lawmakers nearly struck a deal along that line in 2014, which was scuttled after President Barack Obama's executive order on immigration stirred unrest among conservative Republicans worried that the tax credits would be open to fraud by undocumented immigrants.

The House Republicans' leadership difficulties are throwing additional uncertainty into the legislative picture. Rep. Kevin McCarthy's (R-Calif.) withdrawal Oct. 8 as a candidate for the speakership—a seat for which he was the frontrunner—diverts attention from measures that demand negotiation by years' end. Tax extenders, which can be renewed retroactively, aren't as pressing as raising the nation's debt limit, for instance, Rep. Richard E. Neal (D-Mass.) told reporters Oct. 8.

Congress always postpones tax extenders, said Neal, a member of the House Ways and Means Committee. More than once, they have been extended retroactively.

“You can do them retroactively. You can't do the debt ceiling retroactively,” Neal said. “I think the debt ceiling is the most pressing question because that's fooling around with America's credit again.”

To contact the reporter on this story: Marc Heller in Washington at mheller@bna.com
To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com