Opinion: Smith-Wyden tax reform bill would provide to individuals, families, business
Despite a rancorous election year political climate, the first month of 2024 demonstrated that bipartisan cooperation in service of reform is still possible in this Congress, with the U.S. House of Representatives voting on Jan. 31 to pass H.R. 7024, the “Tax Relief for American Families and Workers Act of 2024.”
Though it passed by a large and bipartisan majority in the House, enactment of this legislation, commonly referred to as the Smith-Wyden tax bill, is no sure thing. That’s because members of the U.S. Senate share the same concerns about the bill that caused some House Republicans to vote against it.
A point of contention is the boosted child tax credit. By making the child tax credit partially refundable, it results in the federal government giving money to households with no income tax liability in some instances. Some House Republicans objected to Smith-Wyden’s boosting of the child tax credit, with Congressman Matt Gaetz (R-Fla.) attacking the proposal as “a welfare bill in drag.”
Yet many House Republicans who share Gaetz's objection still voted for the Smith-Wyden bill. Congressman Greg Murphy (R-N.C.), a member of the Ways & Means Committee who voted for the bill, noted that he shares his colleagues' concerns about certain provisions, but added “there’s also a thing called negotiation.”
The U.S. Senate will soon take up the Smith-Wyden tax bill. If enacted, this reform will provide tens of billions of dollars worth of tax relief to individuals, families and businesses annually by restoring business cost recovery provisions that have phased out in recent years.
The Tax Cuts and Jobs Act, the 2017 tax reform bill, provided full business expensing, allowing employers to fully deduct capital expenditures, along with research and development costs, in year one. But, given the constraints of the budget reconciliation process through which the TCJA passed, full expensing began phasing out in 2022.
Businesses are now allowed to deduct only 60% of the capital expenditures that occur in 2024 and must depreciate the remaining value over multiple years. Enactment of the Smith-Wyden tax bill would mean that businesses are once again able to fully deduct capital expenditures for the tax year in which they were purchased. Smith-Wyden’s restoration of of full business and R&D expensing is retroactive to the beginning of 2022.
Permanent full business expensing, along with full deductibility for R&D costs, would grow the size of the economy by 0.5% over the next ten years, according to the Tax Foundation. As home to 300 aerospace companies and 450 aerospace suppliers, along with a burgeoning automotive manufacturing industry that employs 445,000 people, North Carolina has many employers for whom full expensing is crucial.
If Smith-Wyden becomes law, it will be even more beneficial for the North Carolina General Assembly to make the state tax code conform to the federal code’s treatment of capital expenditures. Research from the Business Roundtable found the states with full expensing policies had 5% wage increases for workers in manufacturing facilities compared to states without the policy.
“North Carolina has been a national model for tax reform over the past dozen years, and we should continue to make wise moves like conforming to the Smith-Wyden full expensing provision in order to remain the nation’s best state to do business,” said Brian Balfour, vice president of research at the John Locke Foundation, a Raleigh-based think tank. “Considering that North Carolina is home to the Research Triangle, a premier global technology innovation hub located between Raleigh and Durham, the R&D expensing provision would be especially beneficial.”
Passage of Smith-Wyden is particularly important to keeping North Carolina a globally competitive destination for R&D. A report from Ernst & Young estimates that failure to reinstate full business expensing would depress U.S. economic growth by $45 billion over the next decade and reduce R&D spending by $70 billion. While failure to restore full expensing is projected to destroy hundreds of thousands of jobs, its reinstatement would create 1.2 million jobs over the next 10 years, according to EY’s projections.
Aside from the boost that restoration of full expensing would have for employers, enactment of Smith-Wyden would also make extending the rest of the TCJA’s temporary provisions, which are scheduled to expire at the end of 2025, less difficult. That is why many North Carolina employers hope that members of the U.S. Senate ultimately decide that, while Smith-Wyden has its flaws, the economic boost that full expensing would provide makes the overall package worth passing.
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Tom Fetzer was Mayor of Raleigh from 1993-1999 and chairman of the N.C. Republican Party from 2009-2011. Patrick Gleason, a Haywood County resident, is vice president of state affairs at Americans for Tax Reform, a taxpayer organization founded in 1986 at the request of President Ronald Reagan.
This article originally appeared on Asheville Citizen Times: Opinion: Smith-Wyden bill offers tax relief to families and business
