New Year’s Resolution for Congress: Bipartisan Tax Deal

Having closed out a politically eventful 2023, policymakers and the American people are readying themselves for 2024. What’s more, January marks the beginning of a new tax year, and for many taxpayers, it’s an early reminder to begin preparing documents before tax filing opens in just a few weeks.

Tax season should also be front and center in the minds of Democrats and Republicans on Capitol Hill. If Congress needs a legislative New Year’s resolution, it should be to pass a bipartisan tax reform bill this month.

Unfortunately, bipartisan agreement on tax issues is often elusive. It not impossible, and there’s growing optimism for a bipartisan tax deal on a handful of provisions on both the business and individual sides of the code. Key leaders on the two tax writing committees, the Senate Finance Committee and House Ways and Means Committee, have expressed willingness to negotiate a package. This bodes well for the prospect of a deal materializing.

For businesses, this deal would likely center on restoring the Research and Development Tax Credit, reinstating 100% bonus depreciation, and providing relief on certain business-interest deductions. These critical incentives are essential for keeping the American economic engine geared for growth. Without them, the business community would suffer a competitive disadvantage for deploying their capital in the United States.

These tax incentives were adjusted in the 2017 Tax Cuts and Jobs Act (TCJA), which was the first major reform to the bloated federal tax code in more than a generation. But while the TCJA was, by and large, a banner legislative accomplishment, a few of its policies were short-sighted and must be altered.

For decades, the Research & Development Tax Credit has been used reduce a business’s taxable income so that businesses could deduct certain R&D expenses immediately. That meant that innovative companies received a dollar-for-dollar tax credit when they invested their capital into creating new products. Instead, the TCJA required these investments to be amortized over a five-year period. It’s a subtle change, but one with real impacts.

Sure enough, U.S. R&D investments have slowed and many businesses say this provision has reduced their ability to be competitive. If Congress does not fix this mistake, hundreds of thousands of jobs could be put at risk, according to the National Association of Manufacturers. America is a global leader in innovation, and congressional inaction on this issues risks dulling her sharp competitive edge.

While all businesses benefit from the R&D Tax Credit, it is particularly important for capital-intensive small businesses in the tech and manufacturing industries. Start-ups, which often lack a reliable source of revenue, rely on full deductions to stay in business.

For example, under the old system, a new firm entering the market with a qualified investment of $100,000 could deduct that entire amount from their liability. Today, it’s worth $20,000 per year over five years. That ties up $80,000 that could otherwise have been reinvested immediately.

For example, Congress also must extend the TCJA’s key pro-business policies — the bonus-depreciation provision. One of the most significant provisions of the 2017 law allowed businesses to fully and immediately expense their capital investments through 2022, but this provision has begun to phase out. When businesses can quickly recover the costs of their investments that are eligible for bonus depreciation, they invest more in those assets.

Of course, policy making is the result of dealmaking, and much about the new tax plan still remains to be negotiated. However, taxpayers (and the economy) benefitted greatly from the TCJA’s reforms. These benefits should not be abandoned. As Congress returns in 2024, lawmakers must prioritize a tax deal that makes America more competitive, bolsters economic growth, and delivers tax certainty for families.

Patrick Hedger is the executive director of the Taxpayers Protection Alliance. This was originally published in Newsmax.