A large coalition of House Republicans called for year-end legislation addressing three business tax areas of the Code altered by the 2017 tax reform bill, calling the proposal a pro-growth” economic package.
Roughly 150 GOP members of the lower chamber, led by Indiana Representative Rudy Yakym III, wrote in a November 29 letter to House Speaker Mike Johnson (R-LA) seeking his support for tax legislation that includes restoring “immediate [research and development] expensing, full capital expensing, and a pro-growth interest deductibility rule.” These provisions are often referred to as the “Big Three” provisions of the Tax Cuts and Jobs Act (TCJA; PL 115-97) that enjoyed bipartisan support for revision in the previous Congress but were not touched in last year’s omnibus bill.
The TCJA modified Code Sec. 174 rules to require amortization over a five-year period for certain R&D expenses starting tax year 2022. Prior to this change, taxpayers could immediately deduct such expenses.
A bonus depreciation rate for qualified depreciable assets or qualified property was established at a rate of 100% but scheduled for a phaseout beginning 2023 (80%). Bonus depreciation, under current law, will reduce by 20% each year until hitting 0% in 2027.
Finally, the TCJA set a limit on the Code Sec. 163(j) deduction for business interest expense starting tax year 2018 equal to the sum of business interest income, 30% of adjusted taxable income (ATI), and floor plan financing interest. Effective 2022, depreciation and amortization were removed from the ATI component, although the percentage was temporarily lifted to 50% during the COVID-19 pandemic.
Republican lawmakers generally wish to see the TCJA extended, as several parts are set to expire in 2025. “The TCJA improved America’s competitiveness and solidified the U.S. as the best place in the world to do business,” the coalition wrote, acknowledging the letter’s consignees do not sit on the House Ways and Means Committee but nonetheless wish to support conservative taxwriters. “To build upon this achievement, we believe we need urgent legislative action to support, spur, and secure American innovation, jobs, and competitiveness.”
The letter also gave support to the Build It in America Act (HR 3938), proposed legislation sponsored by Ways and Means Chair Jason Smith (R-MO) that was introduced June 30. The bill was packaged with two others, the Tax Cuts for Working Families Act and the Small Business Jobs Act, which similarly tackle the Big Three. The Build It in America Act, according to a Congressional Budget Office (CBO) score, would “[a]llow businesses to deduct expenses for research and experimentation and to depreciate certain equipment,” as well as “[i]ncrease the amount of interest that businesses can deduct as an expense.”
It would repeal or modify certain clean energy production and investment credits and clean vehicle credits. According to the CBO, the bill would reduce the federal deficit by $169.6 billion through 2033. However, the CBO cautioned that the budgetary effects estimated by the Joint Committee on Taxation “are subject to uncertainty because they are made on the basis of underlying projections and other factors that could change significantly. Specifically, the estimates for many of the bill’s revenue provisions rely on CBO’s economic projections for the next decade under current law.”
Ways and Means Tax Subcommittee Chair Mike Kelly kicked off a December 6 hearing on tax policy by lauding the TCJA. “As a committee and conference, we are committed to economic growth, opportunity and fiscal responsibility,” said Kelly in his opening statement. “Looking ahead to 2025, when many TCJA provisions are set to expire, we need to ensure our tax code encourages investment, job growth, and economic security for American working families.”
“As a car dealer that spent a lifetime fighting for my family’s business — I know how important this committee’s responsibility is to expand on this TCJA’s wins for American workers,” he said in closing.
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