The House of Representatives passed the American Families and Workers Tax Relief Act of 2024, which includes immediate resumption of domestic research spending, by an astonishing bipartisan vote of 357-70, but whether the Senate can pass it? remains unclear. important law. The Senate Finance Committee held a meeting last week titled “Made in America: Growing U.S. Manufacturing through the Tax Code.” Many had hoped this committee hearing would be a sign that the bill would move forward in the Senate, but much-needed tax policy, including immediate research funding, will be delayed until tax year 2025. Despite all panelists expressing their opinions, it remains unclear whether this is the case. At the hearing, there was unanimous agreement that this bill is critically needed this year.
Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee and co-author of the bill with Rep. Jason Smith (R-Missouri), said millions of small businesses would benefit from the bill. He emphasized that he is looking forward to the passage of the bill. If the bill is delayed, many of the same small businesses will disappear. Additionally, Sen. Crapo (R-Idaho), ranking member of the Senate Finance Committee, not only says he has agreed to extend or make permanent three major business tax provisions in the law; He also addressed the panel by promoting: Become the strongest advocate in Congress for proposed changes to business tax law. Crapo continued the discussion by praising the panelists for illustrating why the extension of Section 3 of the business tax in the Tax Cuts and Jobs Act is so important.
The three major tax provisions included in this law that impact businesses across the United States are:
1. Instant expense settlement Domestic Article 174 Expenditures on research and experiments
2. Increase bonus depreciation on qualified property to 100% (currently only 60% for tax year 2024).
3. Allows interest expense limits to be based on 30% of adjusted taxable income before depreciation.
All three of these provisions are familiar to the business community, but they began to become more restrictive starting with the 2022 and 2023 tax years. Click here for more information on the proposed legislation.
A consistent theme from all panelists was that research spending requires investments over a long period of time, rather than being made yearly. Panelists representing small businesses to large corporations urged members of the Senate Finance Committee to restore immediate spending on domestic research and make the changes permanent to bring security and stability to businesses across the country. I asked him to do so.
Mark Widmer, CEO of First SolarFSLR, runs the largest solar power manufacturer in the Western Hemisphere. First Solar's main competitor is China, and Widmer said the current requirement to defer research dollars rather than spend them immediately creates further boundaries between the U.S. and other innovative countries. I am concerned that this may be the case. With the new requirement to defer research spending into the 2022 tax year, the company halted investment in $400 million worth of new manufacturing plants in Ohio and significantly reduced research spending by $200 million annually. The current law will not only slow First Solar's ability to foster innovation in the United States compared to its Chinese competitors, but will also result in the loss of more than 1,000 jobs.
Shannon Janis, vice president of global tax at ONCEMI, highlighted that the U.S. has fallen to 30th out of 37 countries when measuring research incentives among the world's developed countries since the change requiring the amortization of research funds. . He expressed concern that if the ability to immediately spend money on research is not restored soon, research will quickly move to companies in Europe, Asia and elsewhere. Janis called on the committee to restore immediate research funding to ensure vital innovation in the United States.
Peter Huntsman, CEO of Huntsman Corporation, highlighted China's practice of manipulating the price of ethylene carbonate, a much-needed chemical in EV batteries, and called for stability in federal income tax laws. He reiterated the need for this. As a result, Huntsman was forced to cancel a $50 million project in Conroe, Texas, that was supposed to increase manufacturing and production of the desired chemical in the United States. Huntsman emphasized that the scope of the company's research investments spans 20 years at a time and would be significantly limited if it had to analyze and make investments year by year.
If this bill is supported by both the Chairman and Ranking Member of the Senate Finance Committee and clearly helps American growth and innovation flourish, the bill's budgetary impact on the federal deficit will slow the process. Is it possible? The short answer is “no.” The overall 10-year revenue impact of this legislation is estimated to reduce the federal budget by $399 million. This projection reflects more than $77 billion in revenue generated from eliminating fraud related to COVID-19-related enforcement provisions for employee retention deductions, enough to offset three business tax provisions. In addition, it can also cover the funds to correct the child tax. Credit and Affordable Housing Income Tax Credit. Supporting immediate research funding to foster U.S. innovation over the next two years, especially when it is largely paid for by reducing government waste and fraud surrounding COVID-19 pandemic programs. seems like an obvious choice.
So what are the hesitations in moving forward with this bill? Depending on who you ask, the technical problems with the proposed bill appear to be minimal. As I listened to the hearing, one small point of note was the bill's “lookback” provisions that would allow families to use current or prior year income when calculating the enhanced child tax credit. It was something. Rather, both parties may feel they are close enough to the November 2024 election, which could change the White House and Congressional representation and allow for the passage of more partisan legislation in the future. There is a possibility that it will happen.
Like the committee panelists, we believe that Congress needs to take action in the sense that delaying important business tax reform for two years could severely hamper American innovation and threaten the future of many small businesses. I only hope that the voice of the people will be heard. Business is in crisis. Immediate deduction of research expenses is essential for business growth. However, the ability of businesses to access cash and pay significantly increased taxes may be distinctly different for large and small businesses. It is imperative that Congress act now to ensure that small businesses can continue to innovate alongside large multinational corporations while allowing the United States to remain a global competitor. .
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