Analysis

Onshoring Incentives Have Bipartisan Allure In Virus Bill Talks

By Alan K. Ota
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Law360 (May 18, 2020, 6:59 PM EDT) -- A drive to entice multinationals to move overseas manufacturing operations to the U.S. has gained traction with both parties on Capitol Hill as they frame competing plans for new tax incentives to include in possible virus relief legislation.

Rep. Kevin Brady, R-Texas, left, speaks with Rep. Richard Neal, D-Mass., during a House committee hearing in March 2018. (AP)

The two sides agree tax changes are needed to ensure reliable domestic sources for necessary tools to fight the novel coronavirus, including personal protection equipment, medical gear, pharmaceutical drugs and vaccines. But while key Republicans such as Rep. Kevin Brady, R-Texas, ranking member on the House Ways and Means Committee, have advocated for broadening parts of the 2017 Tax Cuts and Jobs Act , Democrats seek more limited items to prod multinationals to relocate foreign manufacturing operations to the U.S.

The Ways and Means chairman, Rep. Richard Neal, D-Mass., told Law360 he wanted to examine targeted incentives to provide rewards to corporations that move factories and jobs to the U.S. in negotiations over possible further legislation in response to the COVID-19 pandemic.

"I'm very interested in it," he told Law360.

The House's top tax writer has said he would be open to GOP business tax proposals to pair with Democratic priorities for workers and families contained in H.R. 6800, the House-passed $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act, or Heroes Act. In addition to providing a second round of economic impact payments, that bill would temporarily expand child tax incentives and the refundable earned income tax credit for workers without children and end for two years the $10,000 cap on deductions for state and local taxes.

But Neal signaled that he leaned against the broad scope of Brady's vision for expanding the 2017 tax law as a formula for spurring domestic manufacturing.

"We're back to taking a look at what happened in December 2017. Many of the things they said would hold up have not held up," Neal told Law360.

In reply to Neal's critiques, Brady volleyed back that the tax rewrite had delivered on the promise of increased investment in U.S. manufacturing. He predicted an emerging GOP plan would help reconfigure "the workplace for COVID-19 and also be part of bringing our production of medicines and medical supplies back to the U.S."

Brady said the plan would include permanent full expensing for business equipment, property and structures and a doubling of the tax credit for research and development.

In addition to such broad business incentives, Brady said he planned to push for a targeted incentive aimed at companies that move overseas production to the U.S., such as a possible lowering of the 21% corporate income tax rate or a tax credit.

"The top-line rate may stay the same, but they may get a credit underneath it. We haven't decided on whether it will be a credit or a rate reduction," Brady told Law360.

In the Senate, Republicans have pushed back against the Heroes Act, arguing it focuses too much on delivering aid and not enough on laying the groundwork for an economic rebound. Senate Democrats contend the House blueprint simply follows up on a number of items in the Coronavirus Aid, Relief and Economic Security Act enacted in March, providing aid for states and local government and incentives for families and workers in health care and other key sectors.

Senate Finance Chairman Chuck Grassley, R-Iowa, voiced general support for the idea of incentives aimed at "bringing industry back" to the U.S. as he tries to help put together a Senate GOP alternative to the Heroes Act, expected in June.

"I think it's pretty important in health care and pharmaceuticals," Grassley told Law360. "But I'm not sure that I have a position on how you do that. It will be a business decision: Either come home or diversify to other countries outside of China."

Like Brady, some GOP members of the Finance Committee have been pushing for proposals to expand parts of the 2017 law, including a drive to continue full expensing for business equipment, which faces reductions after 2022 and elimination after 2026. Republicans in both chambers also have voiced some support for the idea of allowing workers to forgo payment of the 6.2% payroll tax for the rest of 2020 and for some worker incentives.

On the other side, Sen. Debbie Stabenow, D-Mich., a senior member of the Finance Committee, vowed to revive her Bring Jobs Home Act proposal from the previous Congress. It called for a 20% tax credit for insourcing expenses incurred by replacing a foreign factory with one in the U.S. Her plan would bar deductions for the cost of moving abroad.

"We need to have a bring-jobs-home incentive," Stabenow told Law360. "I think it's really important to do. Right now, we need to be more aggressive."

But Stabenow said she and other Senate Democrats likely would oppose broad proposals to expand temporary business incentives enacted in the 2017 tax overhaul.

"If the 2017 tax cuts were enough, we would have more manufacturing in America," she said. "It just didn't work. Some folks made a lot of money off this, but it's not bringing jobs home."

Despite such concerns, Democrats and Republicans in both chambers say they believe there are strong prospects for building consensus support for targeted incentives for companies that shift foreign production of essential goods to the U.S.

"It's going to happen. We need to have a process to make sure we get the right things," Rep. Ron Estes, R-Kan., a member of Ways and Means, told Law360.

For now, both parties are giving mixed signals about whether there will be a compromise on virus relief legislation that would blend parts of the Heroes Act with a GOP menu of business tax incentives and a shield to protect businesses against COVID-19 liability lawsuits.

Whatever happens, some House Republicans, including Estes and Brady, make clear they will not be content to settle for targeted incentives for companies that open U.S. factories and will keep pushing for an expansion of parts of the tax overhaul to spur investment in domestic manufacturing.

Rep. Adrian Smith, R-Nebraska, ranking member on the Ways and Means Select Revenue Measures Subcommittee, said the GOP should stick to its 2017 playbook for pairing a winnowing of tax deductions, credits and exemptions with a lowering of the corporate rate rather than supporting new targeted incentives.

"The broader-base approach is a better one," Smith told Law360.

As both parties weigh options for the next virus relief bill, Smith said he believed a strong case could be made for extending popular short-term items in the 2017 law, such as a proposal to cement full expensing for research and development costs, instead of replacing it in 2022 with gradual deductions, or amortization, over five years.

"Some of the provisions that ended up being temporary would have been more productive being permanent," Smith told Law360.

--Editing by Tim Ruel and John Oudens.

For a reprint of this article, please contact reprints@law360.com.

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