The debate over tax reform entered a more contentious phase on Thursday, as the Senate’s top tax writer put forward a plan to repeal several major provisions used by corporations.
Finance Committee Chairman Max Baucus (D-Mont.), in the third tax reform draft released in as many days, proposed rolling back an incentive that allows businesses to write off property more quickly than it depreciates — currently the most expensive corporate break in the tax code.
The plan would also repeal the “last in, first out” accounting method, which is fiercely defended by many companies that use it to reduce their tax bill.
“America today is using a bloated tax code that was built for businesses close to 30 years ago,” Baucus said in a statement. “The code is completely outdated and acting as a brake on economic growth. More must be done to simplify tax rules, lessen the burden on small businesses and jumpstart job growth.”
Still, the proposal is likely to spur a backlash from business groups that were already critical of the proposal that Baucus released earlier this week to change international tax rules. It also concretely lays out some of the tradeoffs involved in a tax revamp that scraps tax breaks in exchange for lower tax rates.
The proposals could raise hundreds of billions of dollars in new revenue, which could, in turn, allow lawmakers to reduce the 35 percent corporate rate by at least several percentage points. Baucus has said he wants to get the corporate rate below 30 percent, while congressional Republicans are shooting for 25 percent.
Finance aides said Thursday that they hoped corporations would keep the potential rate cut in mind as they weighed the positives and negative of the new proposal.
Baucus and his House counterpart, Ways and Means Committee Chairman Dave Camp (R-Mich.), are trying to breathe new life into the tax reform effort, with both scheduled to give up their gavel in just over a year’s time.
But Finance Republicans also forced Baucus to go alone on his discussion drafts this week, arguing that it didn’t make sense to release proposals during the current budget conference. Republicans have also had policy issues with the Democratic proposals.
Under Baucus’s new draft, companies would be able to deduct tangible property — like drills, computers or other machinery — at four separate levels, based solely on how quickly those objects depreciate.
Under current law, companies can deduct that property more quickly than it depreciates, something the business community says helps spark job creation.
Baucus’s proposal would likely extend the time that most, but not all, assets are written off.
The plan also draws off a Democratic plan to restrict the oil and gas industry’s use of certain tax breaks.
But Baucus would expand another current deduction for business expenses — the so-called Section 179 deduction — in a way his aides say would help small businesses.
The Finance Committee chairman’s draft permanently expands Section 179, which is scheduled to be drastically reduced in 2014. Businesses would also have a wider range of items which they could expense.