The top tax writer told Law360 that he would be open to permanent expensing of business equipment and other tweaks to the 2017 Tax Cuts and Jobs Act as potential add-ons to the next coronavirus relief measure. Such items could be key to rallying GOP support in both chambers for Democratic initiatives such as funding for states, jobless aid and a potential second round of economic impact payments to mitigate the outbreak of the virus, which causes the respiratory disease COVID-19.
Neal made clear he would not rule out more ambitious proposals such as one advanced by Sen. Patrick Toomey, R-Pa., to make permanent full expensing of business equipment and eliminate scheduled reductions in the incentive under the 2017 tax law.
"We are open at the committee level to suggestions on all of this. But we're also going to put out our own bill, which we think will be the template," Neal said.
Neal said he would examine a proposal to make permanent the allowance for full expensing, or full deductions, and other business tax proposals backed by Republicans on his panel.
Some liberals such as Rep. Alexandria Ocasio-Cortez, D-N.Y., have voiced concern about concessions to the GOP in the relief package cleared by the House on Thursday and in the Coronavirus Aid, Relief and Economic Security Act , or CARES Act, enacted last month. For example, liberals have criticized an allowance in the CARES Act for businesses to carry back net operating losses in 2018, 2019 and 2020 for five years.
"I'm concerned we are giving away leverage," Ocasio-Cortez told Law360.
But unless Neal and House Speaker Nancy Pelosi, D-Calif., agree to additional business tax incentives like permanent full expensing, they may not be able to rally enough GOP support to clear the way for final Senate action on Democratic priorities in another bill to address COVID-19's economic impact.
Toomey and other Republicans such as Reps. Adrian Smith of Nebraska and Vern Buchanan of Florida make clear the extension of full expensing of business equipment will be one of a number of GOP priorities.
"I'm working it. Any way we can get it done," Toomey told Law360.
Toomey helped lead the push for a provision in the CARES Act to correct the so-called retail glitch in the 2017 tax law by providing temporary full expensing — not 39-year depreciation — for renovations, or qualified improvement property. Now he's pushing for his Accelerate Long-Term Investment Growth Now Act proposal, S.B. 3296, to allow permanent full expensing both for business equipment and renovations.
Senate Finance Committee Chairman Chuck Grassley, R-Iowa, has not taken a stance on Toomey's proposal, while arguing for a focus on the pandemic's immediate effects. Senate Budget Chairman Michael Enzi, R-Wyo., told Law360 he needed to examine details such as costs and projected benefits.
Still, Toomey said he hoped to rally support in the Finance Committee and in his caucus. He serves as a key adviser to GOP leaders on relief legislation as a member of the Congressional Oversight Commission, overseeing $500 billion in loans to distressed big companies including airlines under the CARES Act.
Proponents contend that a permanent incentive would encourage businesses to make investments based on longer-range planning rather than recent virus-related setbacks. They point to a spurt in manufacturing jobs since full expensing's inception in the 2017 law — up 298,000, or 2.3%, to 12.8 million as of March — extending a long rebound in such jobs since 2010, according to the Bureau of Labor Statistics.
The right-of-center Tax Foundation has estimated a proposal to make full expensing permanent would cost more than $140 billion over 10 years and boost economic growth by about 0.9%, while creating 172,300 jobs.
Without an extension, full expensing, or 100% bonus depreciation, would last through 2022 and then be phased down for four years and eliminated at the end of 2026. Toomey argued that scheduled reductions will deter investors from buying new equipment.
But some critics questioned the value of permanent full expensing.
"It would not do anything to help the economy. What would encourage companies to invest would be customers," said Steve Wamhoff, director of federal tax policy for the Institute on Taxation and Economic Policy, a progressive research group.
The House Budget Committee chairman, Rep. John Yarmuth, D-Ky., told Law360 that Toomey's plan should be part of a broader business tax debate.
"I don't think you can make that judgment whether it's justified at this point," he said.
As part of a potential bipartisan business tax deal, Jason Furman, an economist at Harvard University and former economic adviser to President Barack Obama, has suggested trade-offs such as combining a permanent expanded version of full expensing with a proposal to end net interest deductions to curb benefits for some businesses that use debt financing to buy equipment.
But business advocates are sure to oppose ending interest write-offs after having secured a CARES Act provision to lift from 30% to 50% the share of adjusted taxable income, or ATI, in a formula used to cap net interest deductions for 2019 and 2020. The 2017 law limited such deductions to the sum of interest income, floor financing plan interest and 30% of ATI. It defined ATI as earnings before interest, taxes, depreciation and amortization through 2021 and thereafter as earnings before interest and taxes.
Another option would be to simply delay the phaseout of full expensing.
But Erica York, an economist for the Tax Foundation, said permanent full expensing would be a better driver of growth. She told Law360 it would give businesses "certainty that their expanded capacity will be viable over time," ensuring new equipment can be maintained and eventually replaced.
With similar arguments, Toomey and business advocates call for permanency. Chris Netram, a National Association of Manufacturers vice president, told Law360 in an email that Toomey's proposal "can help put much-needed machinery within reach" for small and medium-size businesses.
For now, Neal said he has made no final decisions as he listens to tax proposals and develops a draft bill toward another pandemic relief measure.
"We intend to have a plan fairly quickly," he said.
--Editing by John Oudens and Neil Cohen.
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