On January 2, President Obama signed into law legislation to make the Research and Experimentation tax credit (sometimes called the research and development or R&D tax credit) retroactive for 2012 and effective for all of 2013. IPC has championed the extension of this credit and will continue to work to make this tax credit permanent. The R&D credit was included in legislation that avoided the so-called “fiscal cliff” by permanently fixing individual tax rates at the same rates for most taxpayers.
Another business tax provision included in the fiscal cliff deal that may be helpful to IPC members is the 50 percent bonus depreciation deduction for qualified investments placed into service in 2013. This bonus depreciation was available in 2012 and was extended through 2013.
These provisions were part of a package of business tax credits and deductions that was approved by the Senate Finance Committee in July 2012. This package was placed into the fiscal cliff legislation that passed Congress on January 1. The fact that all these tax provisions expire at the end of 2013, means that industry and interest group efforts to extend them again for 2014 and beyond will begin immediately.
For many pass-through taxpayers (S corporations, partnerships, etc.) the legislation provides some certainty in terms of tax rates. However, C corporations which are still seeking a lower corporate tax rate are hoping for tax reform. We expect that tax reform will be proposed, if not enacted, this year. Uncertainty for business interests is still a concern for a number of reasons. First, for the Federal Government and government contractors, this legislation only staves off the planned federal defense and domestic spending cuts – called “sequestration” – two months through February. Another legislative fix will then be necessary if these cuts to the 2013 federal budget are to be avoided. Another food fight coming between the Administration and the Congress is the need to expand the federal debt limit. This needs to be accomplished by late February when the Administration has exhausted many of its “extraordinary measures” to fund federal government activities. Republicans believe that now that tax rates have been dealt with, government spending cuts should be the focus of deficit reduction efforts. Finally, one of the last short term items for Congress this spring is the continuation of all government funding when current budget funding for this year expires on March 27. Funding for the last six months of the 2013 fiscal year must be agreed to and this promises to be another opportunity to debate the virtues of many federal programs and services.
IPC will continue to review and assess the actions of Congress and the Administration on these important tax and budget issues.