House Ways And Means Panel Advances Important Tax Legislation

Republican lawmakers in the U.S. House of Representatives recently introduced a few pieces of tax legislation that, together, would reduce taxes on families and businesses by $237 billion over 10 years. MSCI has supported many of the provisions in these bills and is encouraged by this movement. The tax cuts included in the legislation would be offset by eliminating $200 billion in tax credits for clean energy, however — an issue on which MSCI has not expressed a position.

Collectively known as the “American Families and Jobs Act,” the package includes three bills: H.R. 3936, the Tax Cuts for Working Families Act; H.R. 3937, the Small Business Jobs Act; and H.R. 3938, the Build it in America Act.

Of particular interest to the industrial metals industry is the Build It In America Act, which, if enacted into law, would:

• Extend the ability for companies to immediately deduct research and development costs. (As Connecting the Dots readers know, starting in 2022 companies could no longer immediately deduct these costs and, since then, have been required to gradually spread those expenses over time, from a minimum of five years and as many as 15 years.)
• Extend the allowance for depreciation, amortization, or depletion in determining the limitation on business interest. Also starting in 2022, employers faced a more restrictive limit on the amount of business interest they could deduct each year. Instead of using “earnings before interest, taxes, depreciation, and amortization,” (EBITDA) companies could deduct interest expenses only up to 30 percent of their “earnings before interest and taxes,” which resulted in higher tax bills. The House Ways and Means proposal would extend the application of EBITDA to taxable years beginning after December 31, 2022 (and, if elected, for taxable years beginning after December 31, 2021), and before January 1, 2026.
• Extend 100 percent expensing. Under current law, starting in 2023, businesses would be able to immediately deduct only 80 percent of the cost of equipment, machinery, and vehicles, with the rest of the deduction claimed over the life of each asset. The package approved by the House Ways and Means would restore the 100 percent standard.
• Allow taxpayers to make an election to disregard specified foreign income tax regulations when determining if any Western Hemisphere tax is an income, war profits, or excess profits tax for purposes of the Internal Revenue Code. If enacted into law, this provision would remove unnecessary roadblocks to moving operations closer to home.

Meanwhile, the Tax Cuts for Working Families Act would help small businesses and working families by offering a new $4,000 Guaranteed Deduction Bonus for the next two years. This new provision would apply on top of the current Guaranteed Deduction that was doubled in the 2017 tax reform law and could help small businesses that file taxes under the tax code for individuals and families instead of the corporate tax code.

The House Ways and Means Committee approved the three pieces legislation last week. It is still unclear when the full House might vote on them.