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What a business-friendly tax agenda is chasing in a changing parliament

The sun rises over the US Capitol dome in Washington DC on September 30, 2021.

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Main Street could be at a dead end next year when it comes to pushing for corporate-friendly tax policies.

For House Republicans, legislative priorities are likely to include tax cuts passed by the Trump administration in 2017 and expansion of business-friendly provisions in the Jobs Act. True even though the victory gave the Democrats a bigger margin in the Senate. Arizona Senator Kirsten Cinema’s decision to leave the Democratic Party and become an independent on Friday further complicates the legislative handicap.

“In a divided government, I think it will be difficult to enact large-scale tax legislation,” said Dave Camp, senior policy adviser to PwC’s Washington IRS and former Republican congressman and Speaker of Congress. . House Ways and Means Committee.

Rather, tax and policy experts expect House Republicans to focus next year on several positioning moves that will establish a pro-business agenda ahead of the 2024 presidential election.

“There are many provisions in the tax code that companies want changed or revised,” said Rochelle Hawes, a principal with Crow’s Washington Tax Office. By proposing pro-business measures, she said, she had an opportunity to appeal to business people and could be viewed favorably in future elections.

Research and Experimental (R&E) Spending

Certainly, some of what we have planned for 2023 will depend on the outcome of the current lame duck session. Even measures with bipartisan support could be delayed, at least in the short term, by competing priorities.

“Other tax bills, including partial reinstatement of the child tax credit for parents, will need to be passed to gain sufficient bipartisan support,” said Stephan Gottschalk, director of the Washington Department of Taxation at accounting and consulting firm Baker Tilly. There may be,” he said.

One measure likely to be discussed next year, if not addressed in the current session, relates to how R&E spending is deducted, Gottschalk said. Prior to 2022, all of these costs were immediately deductible. Starting this year, companies will have to amortize domestic expenditures over 5 years and overseas R&D expenditures over 15 years.

“Many of the organizations that represent business interests have been very vocal about their opposition,” said Hodes.

Bonus depreciation rules

Another area that appears to have bipartisan support concerns equipment purchase deductions. This year, US businesses can receive a 100% deduction for qualifying equipment purchases. By 2023, that percentage will fall to 80%, he says, and then gradually decline, with companies opposing this, Gottschalk said.

Businesses push for tax cuts as Congress negotiates year-end spending pact

At the recent CNBC CFO Council Summit in Washington, DC, several policymakers discussed the tradeoffs needed to negotiate and negotiate business taxes and childcare.

Kevin Brady, outgoing Republican leader of the House Ways and Means Committee of Texas, said key corporate tax priorities from the phasing out of the 2017 tax law, including R&D expenses and bonus depreciation, are , said there is a chance in the lame duck session of Congress. But Republicans and Democrats are far apart on the price tag. Brady estimated bonus depreciation at $20 billion.

Democratic Senator Ron Wyden of Washington said, “I am a strong supporter of the R&D tax credit being reinstated. I think it was one of the worst parts of the 2017 tax reform bill. I will.” “I have a colleague who feels very strongly about the childcare tax credit, and so do I … I would very much like these two to be linked,” Wyden said, adding that both.

Interest Expense Limitation Rule

A third bipartisan measure under discussion concerns the deduction of business profits. “The Tax Cuts and Jobs Act made significant changes to Section 163(j) by limiting the deduction of business profits beginning December 31, 2017,” Camp said.

“While there have been easings in the Cares Act, the business limit is back to 30% of earnings before interest and taxes (EBIT) in 2022 for companies with revenues above $27 million. seeks to use the traditional revenue basis for prior earnings interest, tax, depreciation and amortization (EBITDA).”

business deduction

One of the Tax Cuts and Jobs Act provisions scheduled to be repealed in 2025 is the Section 199A deduction for businesses organized as pass-through entities. According to the IRS, the deduction allows non-corporate taxpayers to deduct up to 20% of qualifying business income and up to 20% of qualifying real estate investment trust dividends and qualifying listed partnership income.

“This is a huge problem for American businesses. About 70% of all American businesses will be affected,” said Dustin Stamper, managing director of Grant Thornton’s Washington Tax Office. .

Earlier this month, the National Federation of Independent Businesses, a small business advocacy group, announced a nationwide multi-million dollar advertising campaign to garner support for making the deduction permanent. is unlikely, at least in the short term, to come together in a divided state.

Global minimum tax

Republicans are also likely to voice their opposition to the proposed 15% global minimum tax rate, a framework set by the Organization for Economic Co-operation and Development.

“There are some minimum tax rules in place, but they are somewhat inconsistent with the version of the global minimum tax that has been agreed with the rest of the world through the OECD,” Stamper said. parts may move forward, which could put pressure on US multinationals and the US government to respond.”

According to Stamper, the Biden administration failed to use the anti-inflation laws to force the U.S. to comply. Based on that, it would be difficult to understand how they would work together to accomplish anything.”

Efforts unique to SMEs

John Gimiliano, head of legislative services for KPMG’s Washington National Tax Division, also hopes House Republicans will step up their efforts to help small businesses. , he hopes Republicans will host public hearings and other forward-looking initiatives that will ultimately result in legislation that benefits small businesses.

Additionally, he expects the Republican-controlled House to focus on how best to allocate the large amount of money the IRS has received through the Inflation Reduction Act. One concern is that it leads to an increase in audits. Gimiliano hopes that this concern will be addressed by House Republicans, as well as efforts to ensure that the money is spent “in a productive and fair way to taxpayers.”

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