Taxes continue to dominate the dialogue in Washington this spring, as Congress looks for ways to reduce our deficit, increase employment and boost the sluggish economy. The United States now has the dubious distinction of having the highest corporation tax rate in the developed world and the only one with a worldwide system of taxation. A complete overhaul of our tax code is necessary sooner rather than later, but Congress seems to prefer quick incremental fixes rather than real long-term reform.
Late last month, the House GOP leadership passed a $46 billion small business bill that would allow businesses with fewer than 500 employees to deduct up to 20 percent of their profits in 2012. Senate Democrats oppose the bill. They offered a counterproposal that would give a one-year 10 percent tax break only to companies that hire new employees or increase wages. It would also reinstate 100 percent bonus depreciation for 2012. Current law is 50 percent bonus depreciation for 2012. House Republicans oppose this bill. With each chamber opposing the other’s version, it’s unlikely that either bill will make it to the president’s desk – a scenario that has played out again and again on Capitol Hill.
More likely to see action this year is legislation to deal with the long list of tax preferences that expire at the end of the year along with the Bush tax cuts. If Congress fails to act, taxes will increase on many small businesses and middle-class taxpayers in 2013. That’s not a popular alternative for members in an election year – a powerful impetus for action.
Provisions that are expiring at the end of the year include 50 percent bonus depreciation and increased Section 179 expensing – two important investment incentives for manufacturers. In 2013, bonus depreciation drops from 50 percent to zero. The 2012 allowance for Sec. 179, often referred to as small business expensing, is already substantially less than it was in 2010 and 2011 – dropping to $125,000 with a $500,000 phase-out (indexed for inflation) from $500,000 with a $2 million phase-out. Allowances for taxable years 2013 are scheduled to drop to a $25,000 deduction with a $200,000 phase-out.
These seemingly arbitrary year-to-year changes in tax law wreak havoc on investment decisions and hinder innovation and job creation. The R&D tax credit expired at the end of 2011, marking the fifteenth time it will need extending since it was created in 1981. Right now, there is bipartisan support for extending the R&D tax credit, along with increasing bonus depreciation, in 2012 and providing some form of accelerated depreciation in 2013. With only 6 months until the elections and 12 appropriations bills to deal with, it may be that passage on an “extenders” bill will have to wait until a post-election lame duck session.
Adequate funding for the Manufacturing Extension Partnerships remains a top priority for AMT. House and Senate appropriators are moving FY13 funding measures that provide MEPs essentially the same funding as FY12. Both bills also provide funding for the new Advanced Manufacturing Technology Consortia (AMTech) program, which will award grants to industry-led consortia to develop road-maps of critical long-term industrial research needs plus fund research at universities and government labs directed at meeting those needs. The program’s goal is to accelerate the innovation process that creates skilled, high-wage manufacturing jobs.
Congress still has not reauthorized the Ex-Im Bank even though its Charter expires on May 31. It appears supporters are close to a deal that would include a multi-year reauthorization and increase the bank’s lending authority; but there is a vocal group of opponents that is holding up the process. They claim Ex-Im picks winners and losers in the marketplace and should not meddle in private enterprise. Supporters counter that Ex-Im helps level the global playing field and creates jobs through increased exports. According to Ex-Im Chairman Fred Hochberg, Ex-Im provided a record $33 billion in export financing in 2011, with almost 90 percent of the transactions benefiting U.S. small businesses, plus it actually generated a profit for the U.S. treasury.
Click on the American flag on the AMTonline homepage to visit the Advocacy Legislative Action Center and write your members of Congress on these issues. Urge your senators and representative to tackle the challenges at hand now rather than pushing them down the road. They need to hear that uncertainty over what Washington will (or won’t) do next is stifling investment and job creation and holding back what could be a robust, sustained economic recovery.