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As the final days of the 113th Congress wind down, Congress has important work left to do on expired and expiring tax provisions. As the business community has long indicated, seamlessly extending, enhancing, or making permanent these important tax provisions this year provides a necessary bridge to comprehensive tax reform while preventing filing season delays and onerous tax increases.
Recently, the House and Senate leadership forged the outline of a deal that to resolve the issue for this year at least, but then the White House stepped in with a threatened veto. This shows how close we are to moving forward. An acceptable deal is there for the making and all parties should put aside extraneous matters and finish the job.
Many of these provisions are longstanding, and taxpayers’ reliance on them is both rational and reasonable. For example, the active financing exception has been in the Code over 90 years, while the research and development (R&D) tax credit has existed for over 30 years. Regardless of their expiration dates, taxpayers do not construe them as temporary.
Inaction on these provisions has real consequences. Businesses need certainty and predictability. At times, the failure to extend these provisions hurts the very purpose for which they have been enacted. This is particularly apparent with provisions intended to incentivize certain behaviors, such as bonus depreciation or increased small business expensing. If Congress does not extend bonus depreciation seamlessly the result would be higher capital costs and heightened business uncertainty. Likewise, a failure to act on increased small business expensing impedes capital purchases by farmers, ranchers, and small business owners.
Provisions that strive to ensure competiveness also are damaged by inaction. The controlled foreign corporation (CFC) look-thru rules (which allow American worldwide companies to structure foreign holdings in a cost efficient manner to vie with foreign competitors) and the R&D tax credit are vital provisions for to keeping American companies competitive in the global economy. The worldwide economy is growing around us; we must ensure our companies have the tools to compete.
Failure to act also hurts the ability of businesses to grow and expand. Beyond the broad provisions allowing quicker cost recovery extenders such as the 15-year depreciation period for restaurants and retailers, the Section 181 credit for film production, and the railroad tax maintenance credit are essential to holding down the cost of capital affected businesses require to succeed.
The policies that underlie these provisions, ensuring companies can compete, having appropriate cost recovery times, and ensuring predictability and certainty, are all goals we also must strive for in the long term as we work towards comprehensive tax reform. To prevent short term harm as we work toward that goal, Congress must act now on these vital provisions.