Congressman Richard E. Neal, D-Mass., the ranking Democrat on the House Ways and Means Select Revenue Subcommittee, has introduced legislation containing a number of tax and other provisions with the goal of jumpstarting the economy, financing investment in infrastructure, fighting income inequality and creating jobs.
The Invest in US Act would extend several important tax credit initiatives, provide small businesses with tax relief, increase the minimum wage, set up an infrastructure bank and reauthorize several key bond measures for states and municipalities.
“This legislation will go a long way in creating an environment where our economy can take off by making the strategic investment needed to spur growth,” Neal said in a statement Monday. “Furthermore, the legislation takes full aim at the growing income inequality by increasing the minimum wage, while also providing tax relief for businesses that hire new employees and buy new equipment.”
Among the tax provisions, the bill Neal introduced last week would extend and expand the New Markets Tax Credit program to make it permanent, with an allocation amount of $5 billion annually.
In addition, the bill would make the Research and Development Tax Credit permanent and expand the tax credit. The legislation would also increase the the rate of the Alternative Simplified Credit from 14 to 17 percent.
The bill would also make the Work Opportunity Tax Credit permanent. The WOTC provides a federal tax credit up to $9,600 for businesses that hire targeted individuals, but it expired at the end of 2013. Since 1996, the WOTC has expired numerous times, but Neal's legislation would make the credit permanent in order to end the uncertainty surrounding the credit for employers and potential hires.
The legislation also provides for a Jobs Training Tax Credit, incorporating a proposal from Senator Bob Menendez, D-N.J., that links community colleges with local businesses to train employees. Like Menendez's proposal, Neal's bill would provide $1 billion in funding for a competitive tax-credit initiative that encourages colleges and businesses to form job-training partnerships. The proposal also would provide a community college tuition tax credit of up to $4,000 to any U.S.-based business that trains a long-term unemployed person for an open job that requires a certain type of certificate or other training credential.
For business expenses, another provision would permanently extend the 2013 section 179 expensing and investment limitations of $500,000 and $2 million. The provision would be effective for qualifying property placed in service after Dec. 31, 2013.
Another business provision would make permanent the 15-year depreciation schedule for leasehold improvements, restaurant improvements and new construction, and retail improvements. Currently this is a temporary provision that must be extended annually by Congress. By making the provision permanent, the legislation would provide businesses with more of the certainty they need to undertake capital expenditures, which fuel economic activity and create jobs.
Another provision of the bill would increase the minimum wage to $10.10 from its current level of $7.25, as President Obama called for in his State of the Union address last week (see Obama Calls for Wage Increases and Tax Reforms in State of the Union). The wage increase would be phased in over four years and in three increments of 95 cents. Thereafter, the minimum wage would increase as the cost of living increases.
The bill would also create an infrastructure bank. In 2013, the American Society of Civil Engineers gave the United State's infrastructure a grade of D+ and estimated that the U.S. will need to invest an additional $1.6 trillion to fix our infrastructure, Neal's office noted. The Invest in US Act would create the American Infrastructure Financing Authority, or AIFA, an independent, wholly owned government infrastructure bank, to help fund critical infrastructure needs. Under the proposal, the Treasury Department would make available $10 billion in seed money to encourage private investment in public works projects. The self-sustaining entity would be capable of leveraging as much as an estimated $625 billion in private investment by issuing direct loans, loan guarantees, bonds and debt securities. To keep both the costs and risks low, the AIFA would be barred from financing more than 50 percent of any one project.
Neal's bill also contains a number of tax-related bond provisions. It would make the Build America Bonds program permanent, starting with a 32 percent subsidy rate in 2013, and phasing down to a 28 percent subsidy rate in 2017 and thereafter. BABs are intended to spur private-sector investments in infrastructure. From the inception of the program in April 2009 to when it expired at the end of 2010, there were 2,275 separate BABs issued supporting more than $181 billion of financing for new public capital infrastructure projects, such as schools, bridges and hospitals.
Another provision would eliminate the Alternative Minimum Tax on private activity bonds. PABs are a form of municipal bonds used by various public and nonprofit entities such as airports, seaports and student loan issuers. The AMT penalty attached to these bonds results in higher interest rates which correlate to higher infrastructure project costs and higher student loan rate burdens.
To facilitate water and sewer bonds, the bill would exempt water and sewer projects from the Private Activity Bond cap. Currently, the Tax Code limits the amount of tax-exempt private activity bond debt that can be issued annually in a state. The legislation would exclude the PABs issued by water and sewage facilities from the state volume cap. Removing the volume cap would make additional private investment capital available for these types of infrastructure facilities.