Tax Bill Currently Stalled in Congress and Its Effect on Manufacturer’s Income Taxes and Investment in Research and Development

On January 31, 2024, the House of Representatives passed the Tax Relief for American Families and Workers Act of 2024 (HR 7024). This legislation is critical to manufacturers since it will modify several provisions from the Tax Cuts and Jobs Act (TCJA) of 2017, which currently requires taxpayers to capitalize and amortize their research and experimentation expenses. It will also limit their deductible business interest for tax years beginning after December 31, 2021, and reduce depreciation expensing for property placed into service beginning in 2023.

Uncertain Status

The bill’s path forward is uncertain. It has sat in the U.S. Senate for nearly three months after the House passed the proposal by an overwhelming majority. Senate Republicans are calling for major changes to the bill to get their support, including revisions to the Child Tax Credit (CTC), which is part of the Tax Relief for Working Families portion of the bill.

Manufacturers and small businesses are urging the U.S. Senate to quickly approve the House-passed bill. They argue that the expiration, along with the demise of other key tax provisions, has caused reduced investment in research, increased tax bills, hiring delays and a threat to future operations.

The uncertainty surrounding the bill has also put manufacturers into a strange space where some are holding off on filing their 2023 tax returns and paying their estimated income taxes in hopes that Congress will fix the issue and follow the provisions in the House bill. However, until changes are made, people still must file and pay the increased tax liability.

Importance of the Bill

The bill is extremely important since it incentivizes manufacturers to invest in research and development, thereby increasing global competitiveness. It creates an excellent opportunity to innovate and enhance their product offerings while simultaneously benefiting from tax relief.

The favorable changes to the depreciation rules allow manufacturers to accelerate the depreciation of certain assets, which helps them to recoup their investments in machinery, equipment and other capital assets much faster. This leads to an improvement in cash flow and encourages reinvestment in their operations.

What’s Next

During a recent AICPA Town Hall webcast on April 25, Rachel Dresen, the Senior Director of Congressional and Political Affairs at AICPA, commented on the House bill and expressed that the hope is for Senate Majority Leader Chuck Schumer to bring the bill to the floor and obtain the additional 60 votes needed for it to pass. However, she mentioned that as the election draws closer, the legislation will become more difficult to pass and may not get addressed until 2025 when the provisions of the TCJA begin to expire.

Ten teams in the House are also studying the expiring TCJA and are focused on specific areas: manufacturing, working families, workforce, “Main Street,” “new economy,” rural America, community development, supply chains, U.S. innovation and global competitiveness. Each team is comprised of five or six “Ways and Means Committee” members. The teams are tasked with examining expiring TCJA provisions and looking for “legislative solutions.”

Some lawmakers have also recently suggested combining the House bill with the Senate-passed Radiation Exposure Compensation (RECA) Reauthorization Act.

Contributing author: John F. Martin, CPA/PFS, CFP®, is a tax partner at Dannible & McKee, LLP. John has over 37 combined years of experience providing tax compliance and consulting services to a variety of clients, including multi-national corporations, closely held companies and individuals. For more information on this topic, you may contact John at jmartin@dmcpas.com or (315) 472-9127.