As Tax Season Arrives, the Senate Can Lower American Tax Bills

It’s been a busy start to the year in Washington.  Lawmakers continue to fight over a number of pressing legislative priorities. All of this takes place as the presidential election ramps up. Meanwhile,  American taxpayers face their own harsh reality – the coming tax filing deadline.  Luckily, Congress has an opportunity to hand them a win.

For most of 2023, the idea of a bipartisan tax package seemed low on the list of congressional priorities. However, last December, reports began surfacing that lawmakers were quietly in bipartisan negotiations on renewing major tax provisions that have expired or are currently being phased out.

Late last month, the House of Representatives passed a rare, bipartisan tax deal that would give American working families and small businesses a break. Today, the deal sits idle in the Senate. Sens. Chuck Schumer (D-N.Y.) and Mitch McConnell (R-Ky.) should do the right thing and bring this tax deal to the Senate floor now, before this year’s tax deadline arrives.

For years, businesses have been raising the alarm about the rising cost of their operations. This hinders their ability to competitively innovate against other nations that offer “super-tax” breaks for product innovation. Pro-growth tax provisions from the Tax Cuts and Jobs Act (TCJA) – like full research and development (R&D) expensing – expired as far back as 2021. The business community has, as a result, suffered a competitive disadvantage for deploying their capital in the United States.

Until 2022, if a business invested money into (R&D), they could deduct the full amount from their taxable income for that year, since the money was not effectively used as income, but re-invested into the company. As of 2022, however, those costs had to be spread out over five years. This increased American businesses’ tax bill and made it a riskier proposition to invest. This tax package is a worthy response to repeated calls for help from America’s business community.

The bill – introduced by Rep. Jason Smith (R-Mo.) – is appropriately dubbed The Tax Relief for American Families and Workers Act of 2024. On January 31st, the entire House voted overwhelmingly to shore up the wallets of families and entrepreneurs alike. The bill passed 357-70, and H.R.7024 was sent to the Senate for a future vote.

The longer the Senate waits to vote on this tax package, the more likely the window to fix the damage this tax season goes by. This legislation brings solid wins to the American public and a much-needed political wins to both sides of the aisle. The House rightly saw the immediate need to restore immediate and full R&D expensing, reinstate one hundred percent bonus depreciation, and provide relief on certain business-interest deductions, like machinery. These provisions make it easier for businesses to invest in themselves and the American economy, minimizing that risk.

Looking at where the provisions apply retroactively, R&D expensing is provided for 2022 and 2023, one hundred percent bonus expensing applies for 2023, and increased interest deductions apply for both 2022 and 2023.

Looking to the future, returning to immediate R&D expensing will allow companies to deduct their expenditures in the year they were incurred. This will free up capital and allow small businesses that are highly leveraged to make investments in their future. This includes adding jobs, as the salaries of those workers helping to develop products are generally categorized under R&D expenditures. Simply put, high-skilled jobs will start in the United States and stay there. 

Research by the Tax Foundation shows that the package does not exacerbate inflation, despite dubious claims to the contrary. After 2025, tax revenues actually increase through 2033. Providing relief at a time when wages have not kept pace with inflation is just as critical to Americans as any other issue the Senate is set to debate soon. Should the Senate decide to take up The Tax Relief for American Families and Workers Act of 2024 soon, they will build on the benefits ushered in under the TCJA, and adding even more reforms on top of it.

This tax deal makes America more competitive and builds up the economy to weather this current inflationary climate. Leaders in the Senate have been handed a massive opportunity by the House. Further, this is a chance for a bipartisan win – something that has been sorely lacking as of late. There are few “no-brainers” in Washington. However, this is as close as the Senate has come to deliver a key victory for taxpayers. They should take it.