Lawmakers are inching closer to agreement on a bipartisan tax plan that temporarily restores some popular corporate tax cuts.
The American Families and Workers Tax Relief Act of 2024 restores three major business incentives aimed at promoting investment and economic growth, giving companies more incentives on research and development, capital expenditures, interest payments, and more. Allows you to increase your deduction amount.
Deductibles are mostly temporary extensions of previous insurance. Still, experts are already at odds over whether the bill should be on the table in 2025, when larger tax negotiations are expected to begin in earnest.
David Mitchell, a senior fellow on tax and regulatory policy at the Washington Center for Equitable Growth, a think tank that studies economic inequality, said, “Proponents of these corporate tax cuts are trying to figure out how this will put money in the pockets of American workers.'' I often hear people talking about whether or not they'll get in.” he told Yahoo Finance. “They say productivity will increase and eventually that will trickle down to the workers, but you just don't understand it.”
On the other hand, proponents of the three business incentives argue that they collectively stimulate growth.
“By lowering the cost of capital, we incentivize investment across the board for small and medium-sized businesses, large corporations, and all businesses in all industries,” William McBride, vice president of federal tax policy at the Tax Foundation, told Yahoo Finance. . “Many studies by economists have shown that this policy is very effective in promoting business investment.”
What are the proposed business tax cuts?
If passed, it would be available to eligible companies, business owners and investors during the next tax season and retroactive to past investments. Some business bailouts received bipartisan support, but Sen. Jason Smith (R-Missouri) agreed with Ron Wyden (D-Ore.) to cut businesses in exchange for an expansion of the child tax credit. mediated.
Deduction for research and experimental expenses: Companies can immediately deduct domestic R&D investment costs instead of spreading them over five years. This provision will remain in effect until the end of 2025 and will apply retroactively to 2022.
100% bonus depreciation:This law will allow companies to deduct the entire amount of machinery and equipment as business expenses until the end of 2025. The 100% bonus depreciation began to be phased out in 2023. The new regulations will apply retroactively to 2023.
Business interest expense deduction: This tax bill would restore a more generous method for calculating business interest expense deductions.
Taken together, these incentives are designed to encourage investment, remove competitive barriers for U.S. businesses, and ultimately expand job opportunities. Not to mention, it's easier for small businesses to track.
“Most R&D costs are actually salaries of scientists and researchers, and the standard policy in each country is to allow full deductions in the year they are incurred so that companies do not have to lock up working capital. McBride said. He said. “It’s also especially beneficial for small businesses that don’t have an army of tax attorneys who can deal with the complexities of tax law.”
But Mitchell argues that lawmakers are too optimistic that incentives will boost capital growth, which will trickle down to workers in the form of better wages.
“For all the claims that bonus depreciation helps workers, the evidence is clear that the benefits simply aren't trickling down,” Mitchell said. “Shareholders and executives tend to gobble up tax windfalls before distributing them to workers and consumers.”
(Photo by Alex Wong/Getty Images) (Alex Wong via Getty Images)
Mitchell said in a research article that companies that often take advantage of interest deductions do not adjust their investment strategies in response to policy changes. Case in point: The 2017 Trump tax cuts actually tightened the amount of interest expenses that companies can deduct. A study by three Princeton University researchers looked at how that affected private sector investment and found no meaningful decline.
“Companies will continue to make decisions that are going to be made regardless of this situation. [interest] It’s a business deduction,” Mitchell said.
However, many companies base their tax laws on other considerations. And one of the big implications is where to put your investments.
“A lot of the conversations I've had with companies have been that it probably doesn't impact how much R&D investment they make, but it does impact where they invest,” said Ernst & Young, principal and principal at Ernst & Young. said Ray Beeman, leader of the Washington Council. he told Yahoo Finance. “It's clear that companies invest in R&D out of necessity and competitiveness, but that influences subtle decisions about where to invest in R&D.”
Mr Mitchell argued it was unfair to give companies retroactive tax breaks because they “cannot induce investment that has already been made”.
While that may be true, retroactive credits can help Congress incentivize future actions by companies, Beeman explained. “Congress has taken action many times to extend taxes retroactively,” he said.
Business groups, including the U.S. Chamber of Commerce and the Washington, D.C.-based lobbying group Business Roundtable, have expressed support for the bill.
“Failure to act will only exacerbate the harm of recent automatic tax increases on companies that invest in research and development and purchase new equipment,” said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “This is exactly the kind of activity we need,” he said. That's what they need to do to grow our economy and raise wages. ”
While experts disagree on the value or effectiveness of business tax cuts, they agree that ending a deal as significant as this one is a step in the right direction.
“Compromise is always needed to put together bipartisan legislation,” Mitchell said. “Therefore, replacing business tax provisions with child tax credits is a powerful and proven way to reduce child poverty.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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