Highway Funding and Tax Extenders Update

Highway Debate Continues

Last week, we reported on the House’s adoption of a highway trust fund (HTF) extension through December. This extension is the first step of Chairman Paul Ryan’s plan to combine a longer term HTF extension with key international tax reforms.

Meanwhile, Senate leaders want to act now, not in December, on a longer-term extension.   Majority Leader Mitch McConnell, Sen. Barbara Boxer (D-CA), and Sen. Jim Inhofe (R-OK) support a six-year highway deal which has offsets for the first three years, but does not include international tax reform.  The Senate voted 62-36 Thursday morning to begin debate on the measure.

So both the House and Senate want a multi-year bill, but McConnell wants to pass something now and avoid revisiting the issue prior to next year’s election, while Ryan would like to leverage the highway issue to get international tax reforms.  A short-term HTF extension through December gives him more time to build support for the combo package.  Rumor is he will release a detailed plan, which should track closely with the Portman/Schumer International Working Group plan, as soon as next week.

So which is it?  Will it be a multi-year HTF extension now, or HTF extension plus international tax reforms later?  The current HTF authorization expires on July 31st  so we will know next week which view prevails, and whether Congress will be debating international tax reform this fall.

Senate Finance Moves Forward on Extenders

Good news!  The Senate Finance Committee voted this week 23-3 to send a tax extender package to the Senate floor. The extensions last for two years (2015 & 2016) and include S-Corp priorities built-in gains relief and charitable contributions basis adjustment. Relative to last year’s 11th hour retroactive one-year deal, early movement on a two year extension is welcome news.

The question now is how extenders will work its way through the Congress and ultimately to the President’s desk. There was some talk about attaching extenders to the highway bill being debated by the Senate right now, but that seems remote.  Outstanding issues regarding certain provisions, including the application of the solar tax credit, appear to stand in the way.

Regarding the post-August schedule, The Hill reports:

Congress will also have to deal with a number of big-ticket items when lawmakers return from their August recess, including a Sept. 30 deadline for government funding and the recent agreement the Obama administration struck with Iran. Hatch sounded skeptical after the markup that the package of tax breaks could be added to the Senate’s highway bill, which was released Tuesday.

Even though the timeline for passing extenders may be in flux, the fact that the bill has been reported out of committee is a good sign that Congress is moving and may act well in advance of last year’s last minute extension.

Senator Thune Supports Permanent BIG Relief!

Provisions like built-in gains have been part of extenders packages for years, and we’re still fighting to make them permanent. The good news is that we have friends in high places who share that goal.  Just this week, Senator Thune (R-SD) proposed an amendment that would do just that. During the extenders markup, Sen. Thune offered up his legislation to, among other items, make permanent the five year recognition period for built in gains.  He had this to say:

“I support this legislation to ensure that American families and businesses do not find themselves facing a higher tax bill come tax season,” said Thune. “However, I believe we can do better than simply preventing a tax increase in the short term. American taxpayers deserve the certainty and predictability that only comes from making tax relief permanent, something I intend to continue to pursue on their behalf.”

As we continue working to make built-in gains relief and charitable contribution provisions permanent, Sen. Thune’s amendment shows that there is a strong constituency in the Senate for our efforts. We expect that a permanent bill on built-in gains, similar to what was proposed last year, will be introduced soon in the Senate.

S Corp Provisions on House Floor

Last Friday, longtime S-CORP allies Rep. Dave Reichert (R-WA) and Rep. Ron Kind (D-WI) introduced two pieces of legislation – H.R. 629 and H.R. 630 – to extend tax provisions critical to America’s 4.6 million S corporations.

The bills would make permanent the five-year built-in gains holding period as well as a basis adjustment fix for S corporations making charitable contributions.  They build off the momentum from last Congress when identical bills successfully passed the House with broad bipartisan support. These provisions are ones that we’ve championed for years, and go a long way towards making the tax rules for Main Street businesses fair and predictable.

In a joint press release, Rep. Reichert had this to say:

S Corporations are proven job creators and it is our job as legislators to make sure the tax code helps them to access the capital they need to grow, remain competitive and help get Americans back to work. I am pleased to introduce these bipartisan pieces of legislation with my colleague Congressman Kind, because our tax code should encourage growth rather than stifle it. I look forward to working with my colleagues to advance policies that help our small businesses create jobs and support families across the country.

Rep. Kind also added:

These commonsense, bipartisan bills will bring stability and simplicity to the tax code to make it easier for many small businesses to create good jobs and help sustain local communities. There are nearly 60,000 S Corporations in Wisconsin alone, so supporting these job creators is a top priority as we work to strengthen the economy in Wisconsin and across the country.

The broad support these provisions have garnered from the business community and lawmakers reflects the sentiment that these outdated tax rules just don’t make sense and permanent changes need to be made. H.R. 629 would allow S corps increased access to their own capital by providing for a permanent, five-year BIG holding period, rather than the current ten-year period these businesses must endure before they can dispose of appreciated assets without paying a prohibitive tax.  As S-Corp Advisor Jim Redpath testified before the Ways and Means Committee last year:

I find the BIG tax provision causes many S corporations to hold onto unproductive or old assets that should be replaced. Ten years is a long time and certainly not cognizant of current business-planning cycles. Many times I have experienced changes in the business environment or the economy which prompted S corporations to need access to their own capital, that if taken would trigger this prohibitive tax. This results in business owners not making the appropriate decision for the business and its stakeholders, simply because of the BIG tax.

H.R. 630 is another common sense reform that would encourage S corporations to give back by permanently ensuring S corporations are able to deduct the full value of the stock they donate to charity.  This provision would level out the tax treatment of such donations between S corporations and partnerships.

Improving and making permanent the rules for the businesses that drive our economy is critical and we applaud Reps. Reichert and Kind for once again introducing this legislation.  We are looking forward to seeing the bills considered and adopted by the House!

Extenders Clear the Senate

Although it’s not ideal and expires in just two weeks, we are glad to report that the tax extenders bill finally passed in the Senate last night by a 76-16 vote and is on its way to the President’s desk.

Among the 55 provisions included in the bill are the reduced five-year built-in gains holding period and the basis adjustment fix for charitable contributions. The package, however, is a one year retroactive extension of the expired provisions through 2014, and will therefore expire at year’s end.

Interestingly, Senate Finance Chairman Ron Wyden (D-OR) voted against the bill, as did Sen. Rob Portman (R-OH), highlighting the ridiculous nature of a one-year retroactive extension for tax policy. (The 16 “no” votes were a bipartisan affair: 8 members of each party opposed the bill.) Speaking last night, Chairman Wyden said:

“This tax bill doesn’t have the shelf life of a carton of eggs…the only new effects of this legislation apply to the next two weeks.”

Sen. Portman also took to the floor to vent his frustration:

“This is ridiculous because we’re not extending it beyond the tax year and by the time we get back here, it will already be expired for a week or two…it is a failure of Washington again to get its act together and do what should be done.”

That said, we are pleased our S-CORP provisions were included in the package and expect to pick up again next year, as the tax policy conversation will have an early start. Congress is now adjourned for the holidays and will start up again January 6th.

Our thanks go out to all our S-CORP champions, both on and off the Hill, for your continued commitment to the Main Street business cause. We hope that you have very happy holidays and we look forward to our work together in 2015!