H.R. 4718

To amend the Internal Revenue Code of 1986 to modify and make permanent bonus depreciation

Sponsor
Rep. Pat Tiberi

Committee
Ways and Means

Date
July 11, 2014 (113th Congress, 2nd Session)

Staff Contact
Kimberly Betz

Floor Situation

On Friday, July 11, the House will consider H.R. 4718, a bill to modify and make permanent bonus depreciation, under a rule. H.R. 4718 was introduced on May 22, 2014 by Representative Pat Tiberi (R-OH) and has 26 cosponsors. H.R. 4718 was marked up and ordered reported, as amended, on May 29, 2014 by a vote of 23-11.[1]

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[1]See http://www.gpo.gov/fdsys/pkg/CRPT-113hrpt509/pdf/CRPT-113hrpt509.pdf, p. 13.

Bill Summary

H.R. 4718 makes permanent the 50-percent additional first-year depreciation deduction for qualified property.  The provision expands the definition of qualified property to include qualified retail improvement property. The bill also indexes to inflation the $8,000 increased deduction for certain passenger automobiles, and makes permanent the special rule for allocation of bonus depreciation to a long-term contract. The bill makes permanent and modifies the election to increase the AMT credit limitation in lieu of bonus depreciation. Specifically, H.R. 4718 permits taxpayers to claim unused alternative minimum tax credits in lieu of bonus depreciation equal to the lesser of: (1) 50 percent of the taxpayer’s AMT credit in 2014; or (2) the taxpayer’s AMT credits for the taxable years ending before 2014 (with the oldest credits taken into account first).  Finally, the bill allows taxpayers to claim bonus depreciation on trees and vines bearing fruits or nuts, in the taxable year in which the tree or vine is planted or grafted to a plant that has already been planted. The provisions for the additional first year depreciation, the AMT credits in lieu of claiming bonus depreciation generally, and trees and vines are effective for property placed into service or trees and vines planted or grafted after December 31, 2014. For a taxable year beginning before January 1, 2014 and ending after December 31, 2013, a transitional rule applies for purposes of determining the amount eligible for the election to claim additional AMT credits.[2]

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[2]See id, p. 12-13.

Background

“Tax law contains rules that prescribe how asset costs are [to be] deducted.”[3] According to the Committee, “[u]nder current law, a taxpayer may recover, through annual depreciation deductions, the cost of certain property used in a trade or business or for the production of income.

An additional first -year depreciation deduction (i.e. bonus depreciation) was allowed for 50 percent of the cost of qualified property placed in service during calendar years 2008 through 2013. (100 percent for property placed in service between September 8, 2010 and January 1, 2012).

For passenger automobiles subject to the depreciation limits under Section 280F, the bonus depreciation amount was calculated by increasing the section 280F limit for the first year by $8,000. [However], the $8,000 was not indexed for inflation. A corporation could elect to claim unused alternative minimum tax (AMT) credits in lieu of claiming bonus depreciation. The amount of AMT credits that could be claimed was limited to the lesser of: (1) 20 percent of the bonus depreciation deduction otherwise permitted; (2) $30 million; or (3) 6 percent of the AMT credits allocable to the adjusted minimum tax imposed for tax years beginning before January 1, 2006.  Trees and vines that bear fruit or nuts were eligible for bonus depreciation if placed in service during the period that bonus depreciation was available.  In general, trees and vines are placed in service when the plants actually bear fruit or nuts.”[4]

“By restoring and making permanent the 50 percent bonus depreciation deduction, H.R. 4718 would continue an important incentive for businesses and farms that have struggled through the economic challenges of the past six years to invest in critical business assets. Permanent 50-percent bonus depreciation would provide essential certainty for American businesses, allowing them to plan for future investments and lowering the cost of capital.”[5]

It’s worth noting that the Tax Foundation analysis found that permanent bonus depreciation would grow the economy by one percent adding $182 billion to the economy; increase the capital stock by over three percent; increase wages by about one percent (or $500 for an individual making $50,000 per year); and create 212,000 jobs. Seventy-seven associations have called for making bonus depreciation permanent. Moreover, the Heritage Foundation has stated that “bonus depreciation is the exactly the kind of tax policy Congress should be pursuing.”[6]

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[3]See Bonus Depreciation: Economic and Budgetary Issues, June 7, 2014.
[4]See Committee on Ways and Means Fact Sheet.
[5]See http://www.gpo.gov/fdsys/pkg/CRPT-113hrpt509/pdf/CRPT-113hrpt509.pdf, p.5.
[6]See Committee on Ways and Means Fact Sheet and Heritage Action Key Vote Alert citing Heritage Foundation.

Cost

According to JCT, when analyzed against current law baseline, which assumes this provisions is allowed to expire, the bill would reduce revenues by $287.4 billion over 2014-2024.

Additional Information

For questions or further information contact the GOP Conference at 5-5107.

Additional Views

STATEMENT OF ADMINISTRATION POLICY
H.R. 4718 — Permanent Extension of Bonus Depreciation
(Rep. Tiberi, R-Ohio, and 26 cosponsors)

The Administration strongly opposes House passage of H.R. 4718, which would permanently extend “bonus depreciation” rules that allow corporations to speed up deductions for certain investments and thereby delay tax payments.  This provision was enacted in 2009 to provide short-term stimulus to the economy, and it was never intended to be a permanent corporate giveaway.  Moreover, H.R. 4718 includes no offsets and would add $287 billion to the deficit over the next 10 years, wiping out more than one third of the deficit reduction achieved by the American Taxpayer Relief Act of 2013.

The deficit increase in H.R. 4718 is more than twenty times the cost of the proposed extension of emergency unemployment benefits, which Republicans are insisting be offset, and more than triple the discretionary funding increases for defense and non-defense priorities enacted in the Bipartisan Budget Act of 2013, which were offset.  House Republicans also are making clear their priorities by rushing to make business tax cuts permanent without offsets even as the House Republican budget resolution calls for raising taxes on 26 million working families and students by letting important improvements to the Earned Income Tax Credit, Child Tax Credit, and education tax credits expire.

The Administration wants to work with the Congress to make progress on measures that strengthen the economy and help middle-class families, including pro-growth business tax reform.  However, making costly business tax cuts permanent without offsets represents the wrong approach.

If the President were presented with H.R. 4718, his senior advisors would recommend that he veto the bill.