House GOP lawmakers last Friday released their tax reform “blueprint,” part of a series of documents that outline Republicans’ plans for overhauling a number of major institutions, from national security to health care.
Though the plan doesn’t delve into too much detail, it nonetheless provides a useful glimpse into the legislative priorities of Republicans for years to come. Below are some of the key takeaways for AIA members and their firms:
Simplify, condense, streamline
A theme that’s repeated throughout the Blueprint is the desire to simplify the tax code, with the goal of enabling most Americans to file their taxes on a postcard. This is welcome news for individuals and businesses who have seen the tax code become crammed and more complex each year, illustrated by this handy graphic:
Full Expensing
The Blueprint would allow for 100 percent first-year expensing of investments in tangible personal property, real property other than land, and intangible property, rather than requiring businesses to deduct them over several years, as is currently the case. In a traditional sense, full expensing isn’t tremendously important to design firms, because they have less capital expenditures than other industries (think ships and cranes). But viewed through the lens of the 179D deduction, Republicans’ focus on full expensing is an extremely important development.
In introducing the Blueprint, Ways & Means Chairman Kevin Brady made the following comments:
Full and immediate expensing is widely recognized as one of the most pro-growth tax policies around. The ability to immediately deduct the costs of capital investments will help employers improve worker productivity and output—which grows Main Street jobs. And with these savings, businesses across the country will have more freedom to grow, hire new workers and increase wages.
The Energy Efficient Commercial Building Deduction – known best as “179D” for its section in the tax code – is a perfect example of this. The deduction takes this pro-growth approach and uses it to incentivize the construction of energy efficient buildings. (Click here for more information on 179D.) Even if it’s not explicitly stated, the Blueprint’s call for immediate expensing overlaps with our efforts to extend and enhance this critical incentive.
Lower Rates for All
A key aspect of the Blueprint is the degree to which it slashes rates, both for individuals and businesses. Though not unique to this proposal, the Blueprint cleverly separates the tax on pass-through businesses – including S corporations and LLCs, which make up the majority of architecture firms – from other income earned by high tax bracket households. Businesses organized as pass-throughs would face a new rate of just 25 percent, compared to the current top rate of 39.6 percent. The corporate rate would be cut even lower, from today’s 35 percent rate, to 20 percent.
It’s important to keep in mind that the Blueprint is a high-level legislative wish list, akin to the President’s annual budget. It (intentionally) leaves a number of critical questions unanswered, with the goal of having the tax-writing Ways and Means Committee fill them in at a later date. So while there’s a lot to like at first glance, the lack of specificity makes it hard to evaluate and comment on the full impact the Blueprint would have on the design industry. (For example, which tax credits and deductions will be eliminated to free up revenue for the massive rate cuts? Will the Historic Tax Credit get the axe, as was unwisely proposed by the “Camp Draft” back in 2014? How much would these rate reductions cost Treasury each year in reduced tax revenue?)
It’s unlikely that any sweeping tax legislation will be introduced this year, but look for this document to serve as the long-term framework for Republican tax writers. For a complete list of the changes and proposals outlined in the Blueprint, click here.
How would your business be impacted by these proposed changes? Let us know, and be sure to submit your feedback to the Ways & Means Committee as well.
--
Alex Ford, Manager, Federal Relations