(Bloomberg) The U.S. House of Representatives voted to let companies write off more than half the cost of investments in the first year, providing a tax boost to businesses.
The plan, passed 258-160 today, would remove the expiration date from a policy that started as a temporary stimulus effort in President George W. Bush’s administration. Over the next decade, it would reduce federal tax revenue by $287 billion, helping companies that regularly make capital investments such as AT&T Inc. and Verizon Communications Inc.
“This bill is a jobs bill,” said Representative Pat Tiberi, an Ohio Republican. “It’s that simple.”
Democrats objected to the proposal and President Barack Obama’s administration has threatened to veto the bill, making it unlikely the measure will become law any time soon. They said that removing the provision’s temporary nature erases its stimulative value.
“We don’t have the federal resources to hand out one bonus after another to corporations when we know it won’t work,” said Representative Lloyd Doggett, a Texas Democrat.
On the vote, 34 Democrats joined all except two Republicans to pass the measure.
Groups supporting the legislation include the National Association of Manufacturers, the National Retail Federation and the Business Roundtable.
Positive Step’
“Today’s House vote is a positive step towards accelerating higher business investment and growth, which are needed to restore the productive capacity of the U.S. economy and propel job creation,” Randall Stephenson, chairman of AT&T Inc., said in a statement issued by the Business Roundtable. He is the business group’s chairman.
Bonus depreciation in some form has been in place since 2008 as part of the congressional response to the recession.
For a time, it was expanded to allow all of an investment to be deducted in the first year. The provision lapsed at the end of 2013.
Under bonus depreciation, companies can deduct an additional 50 percent of the value of an investment in the first year, on top of the regular depreciation schedule.
The bill passed today would expand bonus depreciation in several ways. It would apply to fruit-bearing and nut-bearing trees and vines and certain retail improvements.
Long-Term Assets
The biggest benefits of bonus depreciation go to capital-intensive companies that have enough profits to soak up the deductions and that make investments in long-term assets other than real estate.
Companies that are profiting from past investments or that aren’t as capital-intensive get little or no benefit.
The bill is part of a larger squabble among lawmakers over how to handle dozens of tax breaks that expired Dec. 31, including the research and development tax credit and a provision allowing people in states without income taxes to deduct their state sales tax payments.
House Republicans are selecting individual provisions and passing indefinite extensions of them. Senate Democrats support extending almost all of the lapsed breaks through the end of 2015, including bonus depreciation.
Lawmakers may not resolve the dispute over how to handle the tax measures until after the November election.
In some ways, the bill runs counter to Republicans’ broader goals for reshaping the U.S. tax code.
Tax Revamp
Three months ago, Ways and Means Chairman Dave Camp of Michigan introduced a draft revamp of the U.S. tax system that would stretch out deductions for equipment purchases and put the revenue toward reducing the corporate tax rate to 25 percent from 35 percent.
Camp also proposed allowing deductions for research and advertising expenses to be taken over a multiyear period.
Groups including the Tax Foundation and Americans for Tax Reform criticized Camp’s plan on depreciation and pointed to nonpartisan estimates showing that the proposal would reduce capital stock.
Now, Camp is moving in the opposite direction by proposing faster write-offs. The underlying tax law attempts to align deductions for capital investments with the multiyear stream of income they create.
The bill is H.R. 4718.
