Lawmakers seized on the opportunity presented by the massive end-of-year spending bill to insert some of their favorite changes, including modifying how retirement savings are treated.
But on taxes, Congress mostly did not take action, even to extend provisions that American families or companies have been clamoring for, in the omnibus bill that passed the House Friday. It’s now headed to President Joe Biden’s desk for signature.
Here is a list of four tax breaks it will not extend.
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1. No expansion of the child tax credit
Current tax law provides most parents or guardians with a tax credit of up to $2,000 per year for each of their children. For half of President Biden’s first year in office, this tax credit got a lot more generous: a monthly benefit of $300 for every young child and $250 for every child between the ages of 6 and 17.
In the eyes of Democrats, some Republicans and many social policy experts, this expansion was a huge success, almost immediately reducing hunger and other measures of poverty among children. When the expanded benefits ended at the end of 2021, child poverty immediately spiked by 41 percent, meaning 3.7 million more children were living in impoverished households in January 2022 compared to the prior month.
Despite vigorous advocacy for a new expansion of the child tax credit, Congress stuck with the existing benefit.
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2. Companies won’t get to immediately deduct research and development
To encourage innovation, the federal government allows companies to take a tax deduction for spending on research and development (even if some pro-tax advocates say that the money a company spends researching, say, new packaging materials for its products doesn’t do much to advance society as a whole).
In the major 2017 tax bill, Congress offset the cost of some of its other tax breaks for corporations by making this R&D benefit less generous later on. Starting in 2022, that law said, companies would have to deduct their research expenses over a period of five years, rather than deducting the R&D spending all at once in the year that the spending happened.
Corporations spent this year trying to prevent the change from taking effect. A group called the R&D Coalition, led by major companies including Amazon, Ford and Microsoft, sent letters to Congress repeatedly, signed by dozens of name-brand companies, saying that the change would stifle job growth and put the United States at a competitive disadvantage with China.
Senators from both parties seemed to agree – in a nonbinding vote in May, they supported keeping the full deduction in place by a vote of 90-5. But the idea did not make it into the omnibus bill.
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3. Tax law will treat big corporate expenses less generously
Let’s say a company invests in a big asset that the business expects to use for many years to come, like when a bakery buys a big new oven.
Before the Trump-era 2017 tax law, the company generally had to deduct the cost of that asset from its taxes over the course of many years. The 2017 law allowed companies to deduct the full expense right away, a move known as “bonus depreciation,” and companies loved it because they’d rather have a tax cut now than later.
Advocates argued that encouraging companies to invest in their businesses is good for the economy; opponents saw it as a giveaway to corporations at the expense of the government.
The 2017 law set this benefit to start phasing out in 2023. Congress didn’t touch that provision this year. So starting next year, barring future legislative action, “bonus depreciation” will drop from the full cost of the asset to 80 percent, and by 2027, the bonus will be gone altogether and companies will have to go back to spreading the depreciation out over many years.
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4. Companies won’t be able to deduct as much of their interest expenses
This is yet another wonky provision tucked inside that 2017 tax law that could have a major effect on corporate tax bills.
Companies that take on debt and then pay interest on that debt can treat those interest payments as a business expense and deduct them on their tax returns. But the 2017 law set a stricter cap, starting in 2022, on just how much of those interest expenses companies can deduct.
The change could cost corporations billions of dollars, added up across all the companies that will be affected.
When Congress passed the Trump-era tax cuts, many expected that the temporary provisions in the bill would someday be extended, making the law far more costly to the country and more generous to businesses. This week marked the first test of that expectation – and Congress hasn’t budged so far. More of those 2017 tax cuts for both businesses and families are set to expire in the years to come.
(c) 2022, The Washington Post · Julie Zauzmer Weil
Source: Matzav