WASHINGTON – Last week, it appeared that Congress was actually going to move forward on a package of tax extenders during this lame duck session, but that may have changed this week, based on recent moves by the White House. As we have written about previously, the package would seek to reauthorize and extend certain tax provisions like the Work Opportunity Tax Credit, the biodiesel blender’s credit, bonus depreciation, compressed and liquefied natural gas credits, and research and development credits. These provisions are traditionally extended near the end of each year, but due to partisan fighting at the end of 2013, many of these credits already expired and it was generally expected that these would be reauthorized retroactively.
In what has become a rarity on Capitol Hill, it appeared that Republicans and Democrats in both houses of Congress were coming together to forge a compromise that would have renewed all of these credits and more, making the ones that have already expired retroactive for 2014, and ensuring that those scheduled to expire at the end of this year will remain. Further, the compromise under discussion would have even made some of these extenders permanent, thus removing them from the annual debate, and providing American businesses with some much-needed certainty.
Unfortunately, as this bipartisan package was coming together, the White House stepped in with a veto threat, claiming the package was weighted too heavily in favor of business tax credits as opposed to those meant to help lower- and middle-class families. Since neither the House nor the Senate leaders believe they have the two-thirds majority required to override a presidential veto, the plan appears to be dead.
So, what does this mean for your business? Many in the industry had been hoping, if not planning, for these credits to be reinstated for 2014 — an increasingly unlikely scenario. Some of the expired provisions affecting our industry are:
- The Work Opportunity Tax Credit (WOTC): This is a credit employers were able to take for hiring veterans, the long-term unemployed, those on government assistance and other targeted groups. American businesses had been claiming roughly $1 billion a year in WOTC credits.
- Biodiesel Blender’s Credit: Those in our industry who have been blending biodiesel products into their diesel fuel had been getting a $1 per gallon tax credit.
- Bonus Depreciation: Prior to its expiration, this credit allowed a company to deduct up to 50% more of a qualifying purchases cost than would normally be available in one tax year. This created a significant boost for companies looking to update major technologies.
- Research and Development Tax Credit: This credit allowed companies to claim significant tax credits on the costs of research and development of new products they ultimately don’t sell. It is seen as a major driver of innovation in American business.
As we see it, the bottom line is that despite an agreement that appeared to have the blessing of party leadership on both sides of the aisle — providing American businesses with some level of certainty going into tax filing season — it was effectively blown up by the president before it was even able to take its final form. This is clearly an unfortunate result that could cost American businesses a lot of money on this year’s tax bill.
For their part, the House leadership may attempt to pass an extenders package that would make the 55 provisions that expired at the end of 2013 retroactively available for 2014. That wouldn’t solve the problem for the long term but would provide some significant tax relief to American businesses, should the package successfully pass the Senate and be signed by the President.
There is hope that once the new Congress convenes in January, with Republican majorities in both chambers, that they may move to push a package renewing and/or making many of these provisions permanent. However, the problem of the White House veto threat would remain and if the president chooses to follow through, neither majority is large enough to override his veto.