A bill that includes $78 billion worth of tax breaks for businesses, including engineering firms and construction contractors, and an expanded child tax credit has cleared a major hurdle with the passage of the package of chamber
The bill then moves to the Senate, where its prospects are uncertain.
The Tax Relief for American Families and Working Americans Act cleared the House on January 31 on a strong bipartisan vote of 357-70, with 169 Republicans joining 188 Democrats who voted in favor of the measure (see the House and Means Committee’s summary of the bill here ).
For engineering firms and construction companies, perhaps the most important provision of the bill is language that allows companies to deduct their research and development expenses in the year they incur those costs. It is also retroactive for R&D expenses dating back to 2022.
Currently, companies must spread R&D expenses and related tax deductions over a five-year amortization period.
Lawmakers did not permanently repeal the five-year amortization; but blocked it for two years, allowing companies to spend their R&D costs until 2025.
“A great victory”
For more than two years, the American Council of Engineering Cos. has seen the issue of R&D depreciation as critically important. “This has really affected this industry,” says Steve Hall, executive vice president of ACEC. Engineering companies are “really in the innovation business” and do R&D, he adds.
Engineering firms of all sizes saw their tax bills rise from 2023 onwards, says Hall. “And for some companies, especially the smaller ones, it has created huge cash flow problems, to the point where it could be an existential threat to the company,” he adds. The House’s vote, “is a great victory for us.”
The Associated General Contractors of America was also pleased to see the provision for R&D expenses included in the bill. AGC said in a Jan. 31 pre-vote letter to House Republican leaders, “construction companies are under tremendous pressure to increase efficiency due to chronic labor shortages, shortage of material and significant fluctuations in the prices of construction materials”. AGC added: “As such, they are increasingly investing substantial resources in research and development.”
AGC also supports other provisions of the measure, including reestablishing total spending for new and used equipment.
The Senate’s outlook is unclear
Attention has quickly shifted to the Senate, where Majority Leader Chuck Schumer (D-N.Y.) has expressed support for the tax bill and Finance Committee Chairman Ron Wyden (D- Ore.), who co-authored the proposal with House Ways and Means Committee Chairman Jason Smith (R-Mo.) — will push for action.
But the top Senate Finance Republican, Mike Crapo (Idaho), said in a statement that after the House action, the Senate will go through its own process.
“I look forward to working with my colleagues to examine the legislation, address concerns and make the necessary changes to build support,” Crapo added.
Brian Turmail, vice president of public affairs and strategic initiatives at AGC of America, said by email that “the timely consideration of the bill in the Senate is clouded by many competing concerns.” For one thing, “the Senate schedule for the next four weeks is a complete mess.”
The House will adjourn from February 9 to 26, and the deadlines for fiscal year spending bills are set for March 1 and 8 for two different groups of appropriations bills, Turmail said.
In addition, House Republicans are taking steps to impeach Homeland Security Secretary Alejandro Mayorkas.
Turmail says that if the full House votes to send articles of impeachment to the Senate, “it will halt all business in the Senate while the impeachment managers in the House conduct a trial in which all senators must attend”.
Hall and Turmail say possible legislative paths in the Senate for the tax bill include a stand-alone option or attaching it to one of several other measures, including spending bills and a reauthorization of the Federal Aviation Administration.
