Corporate Officials: Tax Reform Shouldn’t Come at Expense of Accelerated Depreciation
Republican plan could jeopardize key tax provision that drives investment, jobs
Three corporate tax directors testified today before the Ways and Means Committee about the importance of a key tax provision - accelerated depreciation - that could be in jeopardy under the Republican tax reform proposal. Their testimony - noting the fact that accelerated depreciation is a key driver of investment and job growth - undermines the Republican proposal, which would reduce the corporate rate from 35% to 25% by eliminating tax expenditures. Reaching that rate goal would require ending every corporate tax expenditure - and then some - a 2011 analysis by the Joint Committee on Taxation shows. The analysis begged the question of how Republicans would finance the rest.
Accelerated depreciation is the single largest corporate tax expenditure. The officials also indicated that they did not believe eliminating all corporate tax expenditures and lowering the corporate rate to 28% would improve the competitive position of the United States.
From their testimony:
Michael D. Fryt, Corporate Vice President, Tax, FedEx: “From a macro-economic standpoint, strong capital cost incentives, like expensing, generate new investment in new productive property, plant and equipment in the U.S. This, in turn, creates jobs."
Mark A. Schichtel, Senior Vice President & Chief Tax Officer, Time Warner Cable: “Given the capital intensity of our business, however, we rely even more on timing incentives that do not impact GAAP financial reporting, such as expensing or accelerated depreciation, which significantly enhance out actual cash flows and ability to invest in people, technology and network infrastructure."
Timothy S. Heenan, Vice President, Treasury & Tax, Praxair: “Shortening the capital recovery period of a U.S. project improves the company’s cash flow and makes new domestic investments much more attractive. Better cash flow means more U.S. investment… A lower tax rate will benefit cash flow, but in promoting investment, accelerated depreciation is perhaps a more powerful too than lower overall tax rates. This is because lower tax rates reward both old and new investment - whereas accelerated depreciation is targeted by only rewarding new investment, which is precisely what we need to restore our competitiveness and economic strength."
U.S. Rep. Ron Kind (D-WI) questioned witnesses whether it would be sufficient to eliminate every corporate tax expenditure to reduce the corporate rate from 35% to 28%:
Rep. Kind: Here’s one of the concerns I’ve been raising consistently; the best we can do on the corporate side eliminating every tax expenditure, every tax credit is moving from 35 to 28 percent rate. Would that be sufficient Mr. Fryt and Mr. Schichtel? A 28 percent rate and eliminate every expenditure on the corporate side. Would that be enough to make us more competitive globally?
Mr. Fryt: I don’t think it would, Mr. Kind.
Mr. Schichtel: I agree with Mike.
