The ‘fiscal cliff’ deal that slowly, painfully took shape in the US Congress in recent days fulfills some of corporate America’s tax policy goals, but leaves others unmet, including a big one – real deficit and debt reduction.
The Bill, which received final congressional approval late on Tuesday on a 257-167 bipartisan vote in the House of Represent-atives, would provide businesses with greater tax certainty in the short term.
About $46 billion in business tax breaks were included in the compromise, forged by Democratic Vice President Joe Biden and Senate Republican leader Mitch McConnell and approved early on Tuesday by the US Senate.
The legislation contains a long list of tax ‘extenders’ or temporary tax provisions that will be perpetuated for a year.
Some big-ticket items were part of that, including an extension up to 2013 of the widely-claimed research and development tax credit. Also included was a provision allowing businesses to write off immediately half the value of new investments, known as 50 per cent bonus depreciation.
The legislation also includes a wide range of other favours for select industries, including tax breaks for railroad track mainten-ance, restaurant and retail store improvements, auto racetracks, film and television production, and rum production.
Numerous tax breaks for wind power production and other alternative energy technologies were also included.
“This agreement might not be seen as perfect by everyone, but it gives American consumers and businesses the certainty they need to put worries over this issue behind them,” said Matthew Shay of the National Retail Federation.
Just as notable as what is in the deal is what is not, especially when it comes to reducing the mammoth federal deficit.
The legislation postpones for two months the deep federal spending cuts, known as the ‘sequester’, that were a central worry of the ‘fiscal cliff’. That delay could set up another fiscal cliff in late February, analysts said.
Corporate America has dedicated millions of dollars in recent months to lobbying lawmakers for deficit and debt reduction, seen as crucial to preserving the nation’s credit standing and financial power. The legislation would do little on that.
The compromise also makes no mention of setting up a new method of taxing profits made offshore and brought into the country by US multi-national corporations. Many such businesses have been pushing for a ‘territorial system’ that would let them bring foreign-earned profits home with little or no taxation.
The White House did note in its summary of the legislation that it left “substantial scope” for “reforming corporate taxes” and cutting the corporate tax rate to make it more competitive with the rate in other industrialised countries.
Guggenheim Partners policy analyst Chris Krueger said the deal was “far above what was expected” for business.
He said, “On the deficit reduction side of things, it was clearly a miss, but I suspect they will take the short-term certainty with extenders over entitlement reform any day.”
On the other side of the business tax fence, advocates of closing special loopholes that help certain industries were disappointed. The legislation contains no mention of ending key tax breaks for the oil and gas business, or for senior managers of private equity firms and hedge funds.