House Passes Pro-Manufacturing Tax Bill: Fails to Extend 50% Bonus Depreciation
Press release from the issuing company
June 30, 2004 -- The U.S. House of Representatives moved one step closer to ending escalating European Union trade sanctions against American manufacturers and farmers by passing H.R. 4520, the American Jobs Creation Act on June 17, 2004. Roll Call Vote on Passage for HR 4520. H.R. 4520 is a companion to S. 1637, the “Jumpstart Our Business Strength” (JOBS) Act, passed by the Senate on May 11, 2004. Roll Call Vote on Passage of S. 1637. Both bills repeal U.S export subsidy tax provisions, Foreign Sales Corporations/Extraterritorial Income (FSC/ETI), that have been fo und non-compliant with World Trade Organization rules, and replace them with tax relief for American businesses that will further economic growth and reinvestment in the United States. Looking to quickly resolve differences between the House and Senate versions, Ways and Means Chairman Bill Thomas (R-CA) said, “The focus of H.R. 4520 is in one word: Jobs.”
Capital Investment Incentives
Bonus Depreciation: Unfortunately, H.R. 4520 would not extend the 50% Bonus Depreciation for all manufacturers but only for private aircrafts. A similar provision is included in the Senate’s legislation. Set to expire December 31, 2004, 50% Bonus Depreciation—enacted in the Jobs and Growth Tax Relief Reconciliation Act of 2003—front-loads depreciation in the first year, thereby stimulating capital investment. To qualify, new capital equipment must be purchased AND placed in service by December 31, 2004.
Expensing: In contrast, H.R. 4520 would extend the December 31, 2005 expiration date of the Small Business Expensing provision (from the Jobs and Growth Tax Relief Reconciliation Act) to 2007. This provision allows businesses to expense up to $100,000 of assets, instead of depreciating them over several years. The amount of investment qualifying for this immediate deduction phases-out when a business’s investment exceeds $400,000 in any single year.
Time Is Running Out: For purchases made in 2004, with equipment placed in service by December 31, the two provisions offer tax savings from 30–40%. As a result, it is imperative that NPES members and their customers consider using the powerful investment incentives before time runs out. For an explanation of how the Small Business Expensing provision works with the 50% Bonus Depreciation, see 10 Good Reasons to Buy New Technology Now, and show customers how they can save them thousands of dollars on equipment purchases by running the numbers on the NPES Online Capital Investment Tax Calculator on the Government Affairs page of the NPES website.
Comparison of the House and Senate Tax Bills:
· R&D Credit: Both bills would extend the R&D credit for 18 months. H.R. 4520 begins the extension immediately, leaving no lapse in credit. S. 1637 is not clear on whether the R&D credit will continue seamlessly, however Senators Grassley (R-IA), Baucus (D-MT) and Hatch (R-UT) have indicated a desire to make any extension of the credit retroactive to its expiration date. S. 1637 contains modifications that would expand the R&D credit for 12 months at a cost of $2.2 billion. H.R. 4520 does not have expansion modifications.
· Small Business Expensing: H.R. 4520 extends the small business expensing provision through 2007. S. 1637 would not extend the provision, but would modify its $400,000 limitation so that the deduction would be reduced by only 50% (instead of the current 100%) of each dollar invested above the $400,000 phase-out threshold.
· FSC/ETI transition: H.R. 4520 repeals FSC/ETI over three years; 100% of the benefit is provided in 2004 falling to 0% in 2007. S. 1637 repeals FSC/ETI over three years; 80% of base year benefit is provided in 2004 (after date of enactment) falling to 0% in 2007.
· Corporate Tax Rate Reductions: Both bills would lower the corporate tax rate from 35% to 32% for domestic manufacturers, producers, farmers, and small corporations. H.R. 4520 would reduce the top corporate tax rate from 35% to 32%. S. 1637 would provide an income tax deduction that is comparable to the 3% rate cut in the House bill.
- Eligibility: H.R. 4520 woul d only give a tax cut to C corporations. S. 1637 would give a tax cut to C corporations, individuals, partnerships, S corporations, limited liability companies, and agricultural cooperatives. However, both bills define eligible manufacturing activities similarly.
- Rate Phase-in: H.R. 4520 would provide a smaller rate cut in the first three years, but would reach the full 3% sooner than S. 1637. In H.R. 4520, manufacturers organized as C corporations would receive a 1% rate cut on income attributable to domestic manufacturing from 2004–06 and a 3% rate cut beginning in 2007. S. 1637 gives a series of increasing deductions and rate cuts that would result in the full 3% tax cut in 2009. A chart of S. 1637’s deductions and rate cuts is available on page 3 of Legislative Notice No. 50, March 1, 2004.
· International Tax Reforms: Both bills include provisions to simplify taxes and reduce double taxation of U.S. companies that do business overseas.
More Work Remains: Before House and Senate leaders can begin conferencing to resolve differences between the two bills, the Senate must vote again on its JOBS bill (S. 1637), this time using the House bill number—H.R. 4520—to comply with the constitutional requirement that tax bills originate in the House. Once official conferencing begins, which will likely be later this summer, several issues, including opposition in the Senate to tobacco buyout provisions in the
House bill, could slow the process. Still, congressional leaders are eager to send final legislation to the President's desk in hopes of stopping further increases of EU sanction-tariffs on many products, which currently stand at 8% and will increase by 1 percentage point each month until FSC/ETI is repealed. NPES successfully averted those sanctions from targeting printing, publishing and converting technologies by working cooperatively with its conti nental counterpart Eumaprint.
For more information, please contact Mark Nuzzaco, Director, Government Affairs at 703/264-7200, or visit our website http://www.npes.org/government/index.html.
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