A bill that includes $78 billion worth of tax breaks for businesses–including engineering firms and construction contractors–and an expanded child tax credit has cleared an important hurdle with House approval of the package.
The bill next goes to the Senate, where its outlook is uncertain.
The Tax Relief For American Families And Workers Act cleared the House on Jan. 31 on a strong bipartisan vote of 357 to 70, with 169 Republicans joining 188 Democrats voting for the measure (View House Ways and Means Committee bill summary here).
For engineering firms and construction companies, perhaps the most important provision in the bill is language allowing businesses to deduct their research and development expenditures in the year they incurred those costs. It also is retroactive for R&D expenses going back to 2022.
At present, companies must spread R&D expenditures, and the related tax deductions, over a five-year amortization period.
Lawmakers did not repeal the five-year amortization outright; but did block it for two years, allowing businesses to expense their R&D costs through 2025.
"A Huge Victory"
For more than two years, the American Council of Engineering Cos. has seen the R&D amortization issue as critically important. "This has hit this industry hard," says Steve Hall, ACEC executive vice president. Engineering firms are "really in the innovation business" and do R&D, he adds.
Engineering firms of all sizes saw their tax bills jump starting in 2023, says Hall. "And for some firms, particularly smaller firms, it's created huge cash flow problems, to the point that it could be an existential threat to the company," he adds. The House vote, "is a huge victory for us."
The Associated General Contractors of America also was pleased to see the R&D expensing provision included in the bill. AGC said in a Jan. 31, pre-vote letter to House Republican leaders, "construction firms are under tremendous pressure to increase efficiency due to a chronic labor shortage, material supply shortages and significant fluctuations in the price building materials." AGC added, "As such, they are increasingly investing substantial resources into research and development."
AGC also supports other provisions in the measure, including reinstating full expensing for new and used equipment.
The American Institute of Architects said in a Feb. 2 statement, "Without this legislation, the tax liability of the more than 19,000 architecture firms in the U.S. would be dramatically impacted, limiting their ability to grow, hire talent and even operate successfully."
Senate Outlook Unclear
Attention quickly has shifted to the Senate, where Majority Leader Chuck Schumer (D-N.Y.) has voiced support for the tax bill and Finance Committee Chair Ron Wyden (D-Ore.)–who co-authored the proposal with and House Ways and Means Committee Chairman Jason Smith (R-Mo.)–will push for action.
But Senate Finance's top Republican, Mike Crapo (Idaho), said in a statement that after the House's action the Senate will go through its own process.
"I look forward to working with my colleagues to vet the legislation, address concerns and make the necessary changes to build support,” Crapo added.
Brian Turmail, AGC of America vice president—public affairs and strategic initiatives, said via email that "the bill's timely consideration in the Senate is clouded by many competing concerns." For one thing, "the Senate calendar over the next four weeks is a complete mess."
The chamber will adjourn from Feb. 9-26 and deadlines for fiscal year spending bills loom on March 1 and March 8 for two different groups of appropriations bills, Turmail explains.
Moreover, House Republicans are taking steps aimed at impeaching Homeland Security Secretary Alejandro Mayorkas.
Turmail says if the full House votes to send articles of impeachment to the Senate, "it will halt all Senate business while the House impeachment managers conduct a trial that all Senators are required to attend."
Hall and Turmail say that possible legislative paths in the Senate for the tax bill include a stand-alone option or attaching it to one of several other measures, including the spending bills and a Federal Aviation Administration reauthorization.
Story updated on 2/2/2024 with comments from the American Institute of Architects.