Although the pundits have already weighed in on theeconomic effects of the administration's latest proposals at improving jobs andinvestment, the specific legislation to enact the proposals faces hurdles,which will diminish the likelihood of an effect any time soon.
The proposals, announced earlier this week, would expand,simplify and make permanent the R&D tax credit; accelerate businessinvestment by allowing a full deduction for qualified capital investments throughthe end of 2011; and expand the country's infrastructure of roads, railways andrunways.
The first two are decidedly pro-business. Theinfrastructure proposal, however, has been attacked as a gift to the unions andthe establishment of a national bank at a time when the positive effectspromised by previous stimulus funds have not materialized.The proposal calls for "theestablishment of an Infrastructure Bank to leverage federal dollars and focuson investments of national and regional significance that often fall throughthe cracks in the current siloed transportation programs."
But regardless of their merits, they face the barriers oftiming and cost, according to Marc Gerson, former majority tax counsel to theHouse Ways & Means Committee and a partner in Washington-based Miller &Chevalier.
"Congress is coming back for a short time before theelections," he noted."For any proposal there is a short window of time so that's itsunlikely we could see something enacted in the work period beforeelections."
The other barrier - the elephant in the room - is thecost of the proposals."Thestatutory language will not be that difficult to draft, but the question is howmuch detail has the Administration given to Congress on the revenue offsets tofinance those proposals," said Gerson.
"Therewill be a lot of debate and consideration as to what the revenue offsets wouldbe.Expensing and the R&Dcredit are items that will generate some bipartisan support, but both thetiming and revenue offsets are concerns that will affect the legislativeprocess."
Gerson pointed to the administration's budget proposalsas a possible source for the offsets.
"TheFebruary budget includes measures on international taxation, and oil and gas aswell as other possible "pay-fors," he said. "Those might belikely sources to fund the these."
The offsets might bring a double-edged sword to theproposals, according to Gerson."Companies could benefit, but the question is at what cost, andwhere they would end up on a net basis," he said."For example, a high technologycompany may see a certain benefit from the proposals but at the same time itmight be concerned with offsets aimed at U.S. multinationals, so on a net basisit might not be interested."
"Therevenue offsets will be permanent and could change fundamental ways in whichcompanies' international operations are taxed. The fact that the offsets arenot spelled out in the proposal and that a significant amount of revenue isinvolved causes me to be concerned."
The legislation will likely be proposed in separatepieces so it will be possible to enact one or two rather than all three, Gersonsuggested.The immediate expensingprovision, at a cost of $30 billion, might be easier to enact than thepermanent expansion of the R&D credit at $100 billion.But even if the legislation is proposedseparately, there is a very tight legislative window."
Moreover, the pending midterms and change in the makeupof congress will have an impact, he said. "Both the expensing and theR&D credit provisions might have bipartisan support, but there's still thequestion of how to structure the offsets."
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