Home » Business Tax Breaks Face ‘Now or Never’ Moment in Senate

Business Tax Breaks Face ‘Now or Never’ Moment in Senate

WASHINGTON—U.S. businesses, big and small, have united behind a bipartisan bill to revive expired tax breaks for research and equipment spending, help that many see as critical to competing with foreign rivals or even surviving.

The problem: They can’t get Senate Republicans—usually their allies—to budge.

The House passed the measure 357-70 in January, but GOP lawmakers have stalled the bill in the Senate. Aside from business provisions, the measure would expand the child tax credit and curtail the fraud-ridden employee retention tax credit. Senate Republicans’ complaints include the details of child-credit changes, their inability to amend the bill and the prospect of a better deal next year if Republicans win the Senate majority in November’s election.

The pro-bill coalition, including business groups and progressive anti-poverty activists, is readying a potential final push before tax filing season ends next month. So far, radio ads, letter-writing campaigns and calls from CEOs to senators haven’t moved the needle.

“Some of these provisions have been expired since the end of 2021,” said Neil Bradley, executive vice president of the U.S. Chamber of Commerce. “It’s kind of a now-or-never” moment, he said.

The tax-bill stalemate doesn’t portend a full breakup between American businesses and the Republican Party. After all, GOP lawmakers favor the bill’s tax breaks for research, interest costs and capital spending, while President Biden just released a budget that would raise corporate taxes. But other issues at play on this bill—concern about handouts to low-income households and senators’ leverage in congressional dealmaking—dominate debate among Republicans and show how businesses lack an automatic path for some Washington priorities.

“I’ve heard from all my friends in the business community, and they’re right in terms of needing to renew those in order to be competitive,” said Sen. John Cornyn (R., Texas), a Finance Committee member who said that panel needs a chance to alter the bill. “Until we can get the Senate working again and get the Finance Committee operating, I’m not optimistic.”

This week, the Senate is trying to avert a partial government shutdown before taking a two-week break. Senate Finance Committee Chairman Ron Wyden (D., Ore.) and the committee’s top Republican, Mike Crapo of Idaho, exchanged offers last week in an attempt to find a tax deal but couldn’t agree.

Without a Wyden-Crapo deal, the tax bill may end in a showdown vote as early as April with two possible outcomes. Democrats could find enough Republicans willing to buck Crapo and send the bill to Biden for his signature or Republicans could kill the bill and own the consequences.

CEOs Calling Senators

Republicans aren’t lining up neatly. Occasional dealmakers such as Thom Tillis (R., N.C.) and Mitt Romney (R., Utah) oppose the bill, while Steve Daines (R., Mont.), who runs the Senate GOP campaign arm, supports action this year. At a recent hearing, Tillis described calls from CEOs urging him to support the tax bill. But he said executives don’t have opinions on the child credit and that as a senator, he has to examine the entire legislation.

Rep. Jason Smith (R., Mo.), who represents a low-income district and downplayed corporate tax-break requests as he became chairman of the House Ways and Means Committee, forged a deal with Wyden, a progressive who highlights the bill’s quick benefits for 16 million children. Smith has been trying to persuade GOP senators, noting that the bill’s business breaks are larger than the child-credit expansion if everything gets extended past 2025.

“The politics around this are among the most befuddling I’ve seen in the past few years,” said Andrew Lautz, senior policy analyst at the Bipartisan Policy Center, who sees this bill as a trial run for next year’s larger, messier tax debate.

The business parts of the current bill stem from the 2017 tax law that Republicans passed and then-President Donald Trump signed.

To help pay for cutting the corporate tax rate, lawmakers included several tax increases with delayed start dates. Many lawmakers and executives assumed Congress would reverse them before they kicked in. That never happened.

Rules on Research Costs Sting

The tax change causing the most pain started in 2022. It requires companies to deduct domestic research costs over five years instead of doing so immediately. Other changes affect capital expenses and interest deductions.

For bigger companies such as Alarm.com, a technology provider, the research-break change reduces cash flow, increasing its 2023 tax bill by around $38 million and encouraging the company to spend money on taxes that executives would prefer to invest in the business.

“I’m surprised and I’m disappointed that this bill didn’t sail through the Senate, because it’s such a logical bill,” said Steve Valenzuela, the company’s chief financial officer.

Smaller research-intensive companies such as software firm IntervalZero must spread out the deductions for many workers’ wages, and that’s devastating, said CEO Jeff Hibbard, who raised prices, stopped hiring and borrowed $2 million at 7% interest to survive and pay his taxes.

Crapo says he supports the business tax breaks and wants a deal this year, but other Republicans have dangled the prospect of waiting until 2025.

“I’ve tried to get it for the last three years and that’s what I’m still trying to do,” Crapo said.

Waiting could combine this relatively narrow $78 billion fight with something 40 times larger and far more complex—the expiration of major pieces of the individual tax code after next year.

Business advocates warn that some companies might not last long enough for the next Congress to retroactively change the law for 2022, 2023 and 2024.

“What you’re asking these small businesses to do is provide an upfront loan to the federal government on the theory that maybe they’ll get paid back in 2026,” Bradley said. “That’s just not viable.”

Lack of Deadline Slowed Bill

Businesses understand that Crapo is trying to create a third option—not the House bill, not a dead bill, but a deal Republicans can accept, said Rohit Kumar, a former Senate GOP aide now at accounting firm PricewaterhouseCoopers. Congress often acts only when there’s a clear deadline. Here, there’s no obvious deadline, Kumar said, and this bill is already so deep into retroactive tax policy that businesses can’t know when the practical clock runs out.

“There’s just this sense of panic that in the effort to create Door No. 3, we might accidentally cross the threshold of the bill having politically expired,” Kumar said.

Senate Republicans may be giving Crapo space to make deals, said George Callas, a former House GOP tax aide.

That’s part senatorial courtesy and part practical reality that a Senate GOP election win would give Crapo enormous power over everyone’s taxes next year as the Finance Committee’s new chairman. Few Republican senators have said they would back the bill over Crapo’s objections.

That may change if the ticking clock expires and Majority Leader Chuck Schumer (D., N.Y.) forces a vote where 60 senators would be needed; Democrats have a 51-49 majority.

“All of the senators who are keeping quiet, maybe they are moved,” said Callas, the former House Republican tax aide. “Maybe if Schumer calls their bluff, and puts it on the floor, there will be a jailbreak.”

Jennifer Williams contributed to this article.

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