July 25, 2022

What Is Next For U.S. Tax Policy?

As Connecting the Dots reported last week, Sen. Joe Manchin (D-W.Va.) has said he will not vote for broad-based tax increases on U.S. families, corporations, and small businesses. But that does not mean U.S. lawmakers are done with tax policy discussions for the year.

In fact, as MSCI’s partners at the S-Corp Association explained last week, U.S. taxpayers can expect Congress to work on a tax extenders bill in the coming months. According to the S-Corp Association, lawmakers could consider:

  • Stricter rules around deducting research and development (R&D) expenses that went into effect at the start of this year. Companies that could previously write off all their R&D expenses immediately now must amortize them over five years. Lawmakers could reconsider these rules.
  • The Section 163(J) cap on interest deductibility. The amount of interest a business could write off was previously limited to 30 percent of its EBITDA, but as of this year that cap applies just to EBIT. That’s a much more stringent limitation, particularly for capital-intensive businesses like manufacturers.
  • Provisions to allow businesses to more quickly write-off losses. This tool is one often used to help businesses during a softening economy.

And what are the prospects that a tax extenders bill is signed into law?

Politico tackled that question last week. While noting Republicans might want to wait to see how the November 2022 midterm elections play out, the Washington, D.C.-based newspaper said there are “plenty of Democrats who are big fans of allowing companies to quickly write off their expenses, and some of them have been looking for any avenue they can find to eliminate the new restrictions on deducting research costs, but that’s not going to be an issue that unites all Democrats — some won’t be huge fans of it to begin with, and others who might be sympathetic to quicker expensing have already said they don’t like the idea of passing something like that after falling short on extending” the party’s Build Back Better tax policies.

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