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House backs extending business depreciation tax break

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[July 12, 2014]  By Kevin Drawbaugh
 WASHINGTON (Reuters) - The House of Representatives voted 258-160 on Friday to extend permanently a business tax break dealing with deductions for depreciating certain capital investments, a move that would cost U.S. taxpayers an estimated $287 billion over 10 years.

Known as "bonus depreciation" and now temporary, the tax break lets companies deduct 50 percent of the costs of equipment purchases right away, instead of depreciating the costs over years. That allows them to lower their federal tax costs.

The Republican-drafted House bill, approved with the backing of more than 30 Democrats, will next go to the Democrat-controlled Senate, where it faces an uphill climb.

The White House said on Thursday that if the bill were to win Senate approval and arrive on President Barack Obama's desk, his senior advisers would recommend that he veto it.

The administration criticized the measure because it would expand the federal deficit, adding that bonus depreciation "was never intended to be a permanent corporate giveaway."

Bonus depreciation has traditionally been used as a temporary economic stimulus to encourage businesses to invest in plants and equipment. It was last adopted to help companies recover from the 2007-2008 financial crisis.

It is one 55 temporary tax rules known as extenders, most of which expired at the end of 2013. These are usually renewed retroactively, which analysts expect will happen again after November's congressional elections. Senate Democrats have proposed renewing bonus depreciation through 2016.

The Republican backers of the bill just approved want not only to renew bonus depreciation, but to make it permanent, saying it would spur economic and job growth.

"Making 50 percent bonus depreciation permanent is supported by associations representing ... farmers, telecommunications, manufacturers, energy, construction, retailers and technology," Republican Representative Dave Camp, chairman of the tax-writing House Ways and Means Committee, said in a statement.

"By making long-standing features of the tax code permanent, we can facilitate a comprehensive overhaul of the tax code."

The bonus depreciation bill has no accompanying proposal for raising new government revenue to offset its costs, which Republicans have sometimes demanded for any tax changes.

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Representative Sander Levin, the committee's top Democrat and also from Michigan, said making bonus depreciation permanent detracts from its short-term stimulatory impact.

"Bonus depreciation ... allows companies to write off investments more quickly than normal, providing them an incentive to make capital investments now rather than later," Levin said. "That incentive actually disappears when the provision is made permanent."

He questioned the Republican bill for contradicting a comprehensive tax reform plan released by Camp in February that called for eliminating bonus depreciation. "Iím amazed at the inconsistency of this position. It was five months ago ... that they proposed to eliminate this provision entirely," Levin said.

The loophole-riddled U.S. tax code has not been thoroughly overhauled since 1986, during the Reagan administration. Camp's tax reform plan was bold, but corporate lobbyists attacked it, defending their interests, and the plan gained little support.

(Reporting by Kevin Drawbaugh; Editing by James Dalgleish, Jonathan Oatis and Dan Grebler)

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