[House Report 113-432]
[From the U.S. Government Publishing Office]


113th Congress  }                                          {     Report
                        HOUSE OF REPRESENTATIVES
 2d Session     }                                          {    113-432

======================================================================
 
            AMERICA'S SMALL BUSINESS TAX RELIEF ACT OF 2014

                                _______
                                

  May 2, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Camp, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4457]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4457) to amend the Internal Revenue Code of 1986 to 
permanently extend increased expensing limitations, and for 
other purposes, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................2
          A. Purpose and Summary.................................     2
          B. Background and Need for Legislation.................     3
          C. Legislative History.................................     3
 II. EXPLANATION OF THE BILL..........................................4
          A. Expensing Certain Depreciable Business Assets for 
              Small Business (sec. 179 of the Code)..............     4
III. VOTES OF THE COMMITTEE...........................................7
 IV. BUDGET EFFECTS OF THE BILL.......................................8
          A. Committee Estimate of Budgetary Effects.............     8
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     8
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     8
          D. Macroeconomic Impact Analysis.......................     9
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......10
          A. Committee Oversight Findings and Recommendations....    10
          B. Statement of General Performance Goals and 
              Objectives.........................................    11
          C. Information Relating to Unfunded Mandates...........    11
          D. Applicability of House Rule XXI 5(b)................    11
          E. Tax Complexity Analysis.............................    11
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    15
          G. Duplication of Federal Programs.....................    15
          H. Disclosure of Directed Rule Makings.................    15
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........15
VII. DISSENTING VIEWS................................................19

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``America's Small Business Tax Relief 
Act of 2014''.

SEC. 2. EXPENSING CERTAIN DEPRECIABLE BUSINESS ASSETS FOR SMALL 
                    BUSINESS.

  (a) In General.--
          (1) Dollar limitation.--Paragraph (1) of section 179(b) of 
        the Internal Revenue Code of 1986 is amended by striking 
        ``shall not exceed--'' and all that follows and inserting 
        ``shall not exceed $500,000.''.
          (2) Reduction in limitation.--Paragraph (2) of section 179(b) 
        of such Code is amended by striking ``exceeds--'' and all that 
        follows and inserting ``exceeds $2,000,000.''.
  (b) Computer Software.--Clause (ii) of section 179(d)(1)(A) of such 
Code is amended by striking ``, to which section 167 applies, and which 
is placed in service in a taxable year beginning after 2002 and before 
2014'' and inserting ``and to which section 167 applies''.
  (c) Election.--Paragraph (2) of section 179(c) of such Code is 
amended--
          (1) by striking ``may not be revoked'' and all that follows 
        through ``and before 2014'', and
          (2) by striking ``irrevocable'' in the heading thereof.
  (d) Air Conditioning and Heating Units.--Paragraph (1) of section 
179(d) of such Code is amended by striking ``and shall not include air 
conditioning or heating units''.
  (e) Qualified Real Property.--Subsection (f) of section 179 of such 
Code is amended--
          (1) by striking ``beginning in 2010, 2011, 2012, or 2013'' in 
        paragraph (1), and
          (2) by striking paragraphs (3) and (4).
  (f) Inflation Adjustment.--Subsection (b) of section 179 of such Code 
is amended by adding at the end the following new paragraph:
          ``(6) Inflation adjustment.--
                  ``(A) In general.--In the case of any taxable year 
                beginning after 2014, the dollar amounts in paragraphs 
                (1) and (2) shall each be increased by an amount equal 
                to--
                          ``(i) such dollar amount, multiplied by
                          ``(ii) the cost-of-living adjustment 
                        determined under section 1(c)(2)(A) for such 
                        calendar year, determined by substituting 
                        `calendar year 2013' for `calendar year 2012' 
                        in clause (ii) thereof.
                  ``(B) Rounding.--The amount of any increase under 
                subparagraph (A) shall be rounded to the nearest 
                multiple of $10,000.''.
  (g) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2013.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    Similar to a provision contained in the discussion draft of 
the ``Tax Reform Act of 2014'' released on February 26, 2014, 
the bill, H.R. 4457, reported by the Committee on Ways and 
Means, provides that the maximum amount that a taxpayer may 
expense, for taxable years beginning after 2013, is $500,000 of 
the cost of qualifying property placed in service for the 
taxable year, with such amount reduced (but not below zero) by 
the amount by which the cost of such qualifying property 
exceeds $2,000,000. An identical temporary provision applied 
for tax years 2010, 2011, 2012, and 2013, but it expired for 
tax years beginning after December 31, 2013, causing these 
amounts to revert to $25,000 and $200,000, respectively. Under 
H.R. 4457, both the $500,000 and $2,000,000 limits would be 
indexed for inflation beginning in taxable years after 2014. 
H.R. 4457 also treats off-the-shelf computer software, 
qualified real property, and air conditioning and heating units 
placed in service in taxable years beginning after 2013 as 
eligible for expensing.

                 B. Background and Need for Legislation

    While the Committee continues actively to pursue 
comprehensive tax reform as a critical means of promoting 
economic growth and job creation, the Committee also believes 
that it is important to provide small businesses permanent, 
immediate tax relief to help encourage economic growth and job 
creation. By restoring and making permanent for small 
businesses and farms the ability to expense purchases of 
property and equipment up to $500,000, with such expensing 
phased out (but not below zero) for purchases exceeding 
$2,000,000, H.R. 4457 eliminates the significant reduction in 
the benefit of expensing that resulted from the expiration of 
these temporary expensing levels after 2013. Making the 2013 
levels permanent provides much-needed certainty for small 
businesses and farms, which have struggled through the economic 
challenges of the past six years, enabling them to make 
investments critical to the growth and expansion of their 
businesses and to hire new employees. H.R. 4457 also provides 
certainty by permanently treating investments in computer 
software, heating and air conditioning units, and certain 
investments in real property, as property eligible for 
expensing. To ensure that small businesses' ability to expense 
new investments in property and equipment will keep pace with 
the rising cost of such investments in future years, H.R. 4457 
indexes the expensing limits for inflation. Collectively, these 
changes will help small businesses and farms upgrade equipment 
and facilities, allowing them to reduce maintenance costs, take 
advantage of labor-saving advances, become more energy 
efficient, and adopt technology that is environmentally 
friendly.

                         C. Legislative History


                               BACKGROUND

    H.R. 4457 was introduced on April 10, 2014, and was 
referred to the Committee on Ways and Means.

                            COMMITTEE ACTION

    The Committee on Ways and Means marked up H.R. 4457, the 
America's Small Business Tax Relief Act of 2014, on April 29, 
2014, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

                           COMMITTEE HEARINGS

    The need for permanent rules regarding small business 
expensing was discussed at no fewer than seven hearings during 
the 112th and 113th Congresses:
        Full Committee hearing on Fundamental Tax 
Reform (January 20, 2011);
        Select Revenue Measures Subcommittee Hearing on 
Small Businesses and Tax Reform (March 3, 2011);
        Full Committee hearing on the Interaction of 
Tax and Financial Accounting on Tax Reform (February 8, 2012);
        Full Committee hearing on the Treatment of 
Closely-Held Businesses in the Context of Tax Reform (March 7, 
2012);
        Full Committee hearing on Tax Reform and the 
U.S. Manufacturing Sector (July 19, 2012);
        Select Revenue Measures Subcommittee hearing on 
the Small Business and Pass-Through Entity Tax Reform 
Discussion Draft (May 15, 2013); and
        Full Committee hearing on the Benefits of 
Permanent Tax Policy for America's Job Creators (April 8, 
2014).

                      II. EXPLANATION OF THE BILL


  A. Expensing Certain Depreciable Business Assets for Small Business 
                         (sec. 179 of the Code)


                              PRESENT LAW

    A taxpayer may elect under section 179 to deduct (or 
``expense'') the cost of qualifying property, rather than to 
recover such costs through depreciation deductions, subject to 
limitation.\1\ For taxable years beginning in 2013, the maximum 
amount a taxpayer may expense is $500,000 of the cost of 
qualifying property placed in service for the taxable year.\2\ 
The $500,000 amount is reduced (but not below zero) by the 
amount by which the cost of qualifying property placed in 
service during the taxable year exceeds $2,000,000.\3\ The 
$500,000 and $2,000,000 amounts are not indexed for inflation. 
In general, qualifying property is defined as depreciable 
tangible personal property that is purchased for use in the 
active conduct of a trade or business. Qualifying property 
excludes investments in air conditioning and heating units.\4\ 
For taxable years beginning before 2014, qualifying property 
also includes off-the-shelf computer software and qualified 
real property (i.e., qualified leasehold improvement property, 
qualified restaurant property, and qualified retail improvement 
property).\5\ Of the $500,000 expense amount available under 
section 179, the maximum amount available with respect to 
qualified real property is $250,000 for each taxable year.\6\
---------------------------------------------------------------------------
    \1\Additional section 179 incentives have been provided with 
respect to qualified property meeting applicable requirements that is 
used by a business in an enterprise zone (sec. 1397A), a renewal 
community (sec. 1400J), the New York Liberty Zone (sec. 1400L(f)), and 
the Gulf Opportunity Zone (sec. 1400N(e)). In addition, section 179(e) 
provides for an enhanced section 179 deduction for qualified disaster 
assistance property.
    \2\For the years 2003 through 2006, the relevant dollar amount is 
$100,000 (indexed for inflation); in 2007, the dollar limitation is 
$125,000; for the 2008 and 2009 years, the relevant dollar amount is 
$250,000; and for 2010, 2011, and 2012, the relevant dollar limitation 
is $500,000. Sec. 179(b)(1).
    \3\For the years 2003 through 2006, the relevant dollar amount is 
$400,000 (indexed for inflation); in 2007, the dollar limitation is 
$500,000; for the 2008 and 2009 years, the relevant dollar amount is 
$800,000; and for 2010, 2011, and 2012, the relevant dollar limitation 
is $2,000,000. Sec. 179(b)(2).
    \4\Sec. 179(d)(1) flush language.
    \5\Secs. 179(d)(1)(A)(ii) and (f).
    \6\Sec. 179(f)(3).
---------------------------------------------------------------------------
    For taxable years beginning in 2014 and thereafter, a 
taxpayer may elect to deduct up to $25,000 of the cost of 
qualifying property placed in service for the taxable year, 
subject to limitation. The $25,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$200,000. The $25,000 and $200,000 amounts are not indexed for 
inflation. In general, qualifying property is defined as 
depreciable tangible personal property (not including off-the-
shelf computer software, qualified real property, or air 
conditioning and heating units) that is purchased for use in 
the active conduct of a trade or business.
    The amount eligible to be expensed for a taxable year may 
not exceed the taxable income for such taxable year that is 
derived from the active conduct of a trade or business 
(determined without regard to this provision).\7\ Any amount 
that is not allowed as a deduction because of the taxable 
income limitation may be carried forward to succeeding taxable 
years (subject to limitations). However, amounts attributable 
to qualified real property that are disallowed under the trade 
or business income limitation may only be carried over to 
taxable years in which the definition of eligible section 179 
property includes qualified real property.\8\ Thus, if a 
taxpayer's section 179 deduction for 2012 with respect to 
qualified real property is limited by the taxpayer's active 
trade or business income, such disallowed amount may be carried 
over to 2013. Any such carryover amounts that are not used in 
2013 are treated as property placed in service in 2013 for 
purposes of computing depreciation. That is, the unused 
carryover amount from 2012 is considered placed in service on 
the first day of the 2013 taxable year.\9\
---------------------------------------------------------------------------
    \7\Sec. 179(b)(3).
    \8\Section 179(f)(4) details the special rules that apply to 
disallowed amounts.
    \9\For example, assume that during 2012, a company's only asset 
purchases are section 179-eligible equipment costing $100,000 and 
qualifying leasehold improvements costing $200,000. Assume the company 
has no other asset purchases during 2012, and has a taxable income 
limitation of $150,000. The maximum section 179 deduction the company 
can claim for 2012 is $150,000, which is allocated pro rata between the 
properties, such that the carryover to 2013 is allocated $100,000 to 
the qualified leasehold improvements and $50,000 to the equipment.
     Assume further that in 2013, the company had no asset purchases 
and had no taxable income. The $100,000 carryover from 2012 
attributable to qualified leasehold improvements is treated as placed 
in service as of the first day of the company's 2013 taxable year. The 
$50,000 carryover allocated to equipment is carried over to 2013 under 
section 179(b)(3)(B).
---------------------------------------------------------------------------
    No general business credit under section 38 is allowed with 
respect to any amount for which a deduction is allowed under 
section 179.\10\ If a corporation makes an election under 
section 179 to deduct expenditures, the full amount of the 
deduction does not reduce earnings and profits. Rather, the 
expenditures that are deducted reduce corporate earnings and 
profits ratably over a five-year period.\11\
---------------------------------------------------------------------------
    \10\Sec. 179(d)(9).
    \11\Sec. 312(k)(3)(B).
---------------------------------------------------------------------------
    An expensing election is made under rules prescribed by the 
Secretary.\12\ In general, any election or specification made 
with respect to any property may not be revoked except with the 
consent of the Commissioner. However, an election or 
specification under section 179 may be revoked by the taxpayer 
without consent of the Commissioner for taxable years beginning 
after 2002 and before 2014.\13\
---------------------------------------------------------------------------
    \12\Sec. 179(c)(1).
    \13\Sec. 179(c)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that section 179 expensing provides 
two important benefits for small businesses. First, it lowers 
the cost of capital for tangible property used in a trade or 
business. With a lower cost of capital, the Committee believes 
small businesses will invest in more equipment and employ more 
workers. Second, it eliminates depreciation recordkeeping 
requirements with respect to expensed property. To increase the 
value of these benefits and to increase the number of taxpayers 
eligible, the provision increases the amount allowed to be 
expensed under section 179 and increases the amount of the 
phase-out threshold. In addition, to counteract the negative 
effect of inflation on the limit and phase-out threshold of 
this provision for small businesses, the provision indexes such 
amounts for inflation.
    The Committee also believes that qualified real property 
(i.e., qualified leasehold improvement property, qualified 
restaurant property, and qualified retail improvement property) 
should continue to be included in the section 179 expensing 
provision to encourage small businesses to invest in these 
types of real property. Similarly, the Committee believes that 
investments in air conditioning and heating units used in the 
active conduct of a trade or business should be included within 
the definition of qualifying property to remove a disincentive 
for small businesses to invest in more efficient cooling and 
heating equipment. Further, the Committee believes that 
purchased computer software should continue to be included in 
the section 179 expensing provision so that it is not 
disadvantaged relative to developed software. In addition, the 
Committee believes that the process of making and revoking 
section 179 elections should continue to be simpler and more 
efficient for taxpayers by eliminating the requirement of the 
consent of the Commissioner.

                        EXPLANATION OF PROVISION

    The provision provides that the maximum amount a taxpayer 
may expense, for taxable years beginning after 2013, is 
$500,000 of the cost of qualifying property placed in service 
for the taxable year. The $500,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$2,000,000. The $500,000 and $2,000,000 amounts are indexed for 
inflation for taxable years beginning after 2014.
    In addition, the provision makes permanent, for taxable 
years beginning after 2013, the treatment of off-the-shelf 
computer software as qualifying property. The provision also 
makes permanent the treatment of qualified real property as 
eligible section 179 property for taxable years beginning after 
2013. Further, the provision removes the limitation related to 
the amount of qualified real property that qualifies as section 
179 property for taxable years beginning after 2013. The 
provision also strikes the flush language in section 179(d)(1) 
that excludes air conditioning and heating units from the 
definition of qualifying property.
    The provision permits the taxpayer to revoke without the 
consent of the Commissioner any election, and any specification 
contained therein, made under section 179 after 2002.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2013.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 4457, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal budget receipts for fiscal years 2014-2024:


                                                  Fiscal Years
                                              [Billions of Dollars]
----------------------------------------------------------------------------------------------------------------
  2014     2015     2016     2017     2018     2019     2020     2021    2022    2023    2024   2014-19  2014-24
----------------------------------------------------------------------------------------------------------------
   -1.8    -18.2    -10.1     -8.6     -7.1     -5.7     -4.8     -4.3    -3.7    -4.0    -4.6    -51.6   -73.1
----------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4457, the 
America's Small Business Tax Relief Act of 2014.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 4457--America's Small Business Tax Relief Act of 2014

    H.R. 4457 would amend section 179 of the Internal Revenue 
Code, which mostly affects small- to medium-sized businesses, 
to retroactively and permanently extend from January 1, 2014, 
increased limitations on the amount of investment that can be 
immediately deducted from taxable income. H.R. 4457 also 
indexes the limitations for inflation and expands the 
definition of property that qualifies for that immediate 
deduction.
    Permanently extending to $500,000 the annual cost of 
property eligible for expensing under section 179, expanding 
the qualifying property eligible under section 179, and 
indexing the amounts for inflation, would allow firms to deduct 
immediately from their taxable income the full costs of up to 
$500,000 in investment of certain equipment from their taxable 
income, instead of spreading the costs out over time. The 
benefit of the immediate expensing phases out if total 
qualifying investment exceeds $2 million, indexed for 
inflation.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 4457 would reduce revenues, thus 
increasing federal deficits, by about $73 billion over the 
2014-2024 period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending and revenues. Enacting H.R. 4457 would result 
in revenue losses in each year beginning in 2014. The estimated 
increases in the deficit are shown in the following table.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Logan 
Timmerhoff. The estimate was approved by David Weiner, 
Assistant Director for Tax Analysis.

           CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4457, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON APRIL 29, 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             By fiscal year, in millions of dollars--
                                         ---------------------------------------------------------------------------------------------------------------
                                           2014     2015     2016    2017    2018    2019    2020    2021    2022    2023    2024   2014-2019  2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects.........   1,812   18,216   10,140   8,579   7,145   5,738   4,819   4,322   3,746   3,971   4,646    51,630    73,135
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.
    The bill permanently extends an increase in the amount of 
investment in equipment (and a small, targeted subset of real 
property) that may be deducted immediately, or expensed, as 
opposed to depreciated over longer periods of time. The ability 
to expense, rather than depreciate investment expenses reduces 
the cost to firms of making these investments, thus reducing 
their after tax cost of capital and providing an incentive for 
increased investment.\14\ Some research on the effects of 
expensing on business investment has confirmed that investment 
increases when more generous expensing policy is in effect.\15\ 
Additionally, there is some evidence that expensing is 
particularly helpful to smaller, start-up firms that may have 
less access to capital markets.\16\ Other research has raised 
questions about the efficacy of expensing as opposed to 
investment tax credits in encouraging investment in light of 
the fact that investment tax credits produce a more favorable 
picture in firm financial statements. But such studies still 
find an overall positive effect of increased expensing on 
investment.\17\
---------------------------------------------------------------------------
    \14\Economic theory of the effects of ``cost of capital'' on 
investment was first formalized by Dale Jorgenson in 1963 ``Capital 
Theory and Investment Behavior,'' American Economic Review, 54, pp. 
247-59. Jorgenson, along with Robert Hall added effects of taxation, 
particularly depreciation policy to this framework in ``Tax Policy and 
Investment Behavior, American Economic Review,'' 57 (3) pp 391-414 in 
1967. Many macroeconomic simulation models, including the JCT staff 
Macroeconomic Equilibrium Growth model, use this framework to model 
investment decisions.
    \15\See, for example, Bond, Stephen, and Jing Xin, ``Corporate 
Taxation and Capital Accumulation,'' Oxford University Centre for 
Business Taxation Working Paper, Said Business School, Oxford, UK, 
2010.
    \16\Steven M. Fazzari, R. Glenn Hubbard, Bruce C. Petersen, Alan 
Blinder, and James Poterba discuss the importance of the availability 
of retained earnings for firms with financing challenges in ``Financing 
Constraints and Corporate Investment,'' Brookings Papers on Economic 
Activity, 1988(1), 1988 , pp. 141-206. Gian Luca Clementi and Jugo 
Hopenhayn explain that small firms are more likely to experience cash 
flow constraints in financing investment in ``A Theory of Financing 
Constraints and Firm Dynamics,'' The Quarterly Journal of Economics, 
121(1), MIT press, 2006, pp 229-265.
    \17\See, for example, Edgerton, Jesse, ``Investment, Accounting, 
and the Salience of the Corporate Income Tax,'' Finance and Discussion 
Series, Division of Research and Statistics and Monetary Affairs, 
Federal Reserve Board, Washington, D.C., March 21, 2011.
---------------------------------------------------------------------------
    Increased investment can be expected to result in an 
increase in the amount of economic growth and in the long run 
growth potential of the economy. Thus, we expect that the bill 
is likely to result in a small increase in overall economic 
growth. However, the increase in allowed expensing under the 
bill, from $25,000 in 2014 to $500,000, and the size of firms 
it applies to (firms using this provision cannot invest more 
than $2,500,000 in 2014) limit the expected impact of the 
incentive. JCT estimates that the amount of investment that 
could potentially take advantage of the provision is less than 
10 percent of projected baseline investment. The availability 
of this incentive to a small subset of firms also poses the 
possibility that it could distort efficient investment 
decisions by favoring investment by certain types of firms over 
other types of firms.
    Finally, in the short-run, the net reduction in tax 
receipts resulting from the bill could provide for a small 
increase in overall demand, thus resulting in some economic 
growth. In the longer term, the resulting increase in deficits 
would result in higher interest rates, reducing the positive 
investment incentive effects from the expensing.
    Overall, we estimate that the effects of the bill on 
economic activity are so small relative to the size of the 
economy as to be incalculable within the context of a model of 
the aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 4457 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    The following statement is made pursuant to clause 3(h)(1) 
of rule XIII of the Rules of the House of Representatives. 
Section 4022(b) of the Internal Revenue Service Restructuring 
and Reform Act of 1998 (the ``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. For each such provision identified by the staff of 
the Joint Committee on Taxation a summary description of the 
provision is provided along with an estimate of the number and 
type of affected taxpayers, and a discussion regarding the 
relevant complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each of the provisions included in the complexity analysis.

 1. EXPENSING CERTAIN DEPRECIABLE BUSINESS ASSETS FOR SMALL BUSINESSES

Summary description of the provision

    The bill provides that the maximum amount a taxpayer may 
expense, for taxable years beginning after 2013, is $500,000 of 
the cost of qualifying property placed in service for the 
taxable year. The $500,000 amount is reduced (but not below 
zero) by the amount by which the cost of qualifying property 
placed in service during the taxable year exceeds $2,000,000. 
The $500,000 and $2,000,000 amounts are indexed for inflation 
for taxable years beginning after 2014.
    In addition, the bill makes permanent, for taxable years 
beginning after 2013, the treatment of off-the-shelf computer 
software as qualifying property. The bill also makes permanent 
the treatment of qualified real property as eligible section 
179 property for taxable years beginning after 2013. Further, 
the bill removes the limitation related to the amount of 
qualified real property that qualifies as section 179 property 
for taxable years beginning after 2013. The bill also strikes 
the flush language in section 179(d)(1) that excludes air 
conditioning and heating units from the definition of 
qualifying property.
    The bill permits the taxpayer to revoke without the consent 
of the Commissioner any election, and any specification 
contained therein, made under section 179 after 2002.

Number of affected taxpayers

    It is estimated that the provision will affect over ten 
percent of small business tax returns.

Discussion

    While taxpayers purchasing section 179 property will still 
be required to complete and file Form 4562, Depreciation and 
Amortization (Including Information on Listed Property), 
significantly less detail is required to be included on such 
form. Accordingly, the compliance burden of many taxpayers will 
be reduced.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(j)(2) of H. Res. 5 (113th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program, 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139, or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169).

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(k) of H. Res. 5 (113th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *



SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

  (a) * * *
  (b) Limitations.--
          (1) Dollar limitation.--The aggregate cost which may 
        be taken into account under subsection (a) for any 
        taxable year [shall not exceed--
                  [(A) $250,000 in the case of taxable years 
                beginning after 2007 and before 2010,
                  [(B) $500,000 in the case of taxable years 
                beginning in 2010, 2011, 2012, or 2013, and
                  [(C) $25,000 in the case of taxable years 
                beginning after 2013.] shall not exceed 
                $500,000.
          (2) Reduction in limitation.--The limitation under 
        paragraph (1) for any taxable year shall be reduced 
        (but not below zero) by the amount by which the cost of 
        section 179 property placed in service during such 
        taxable year [exceeds--
                  [(A) $800,000 in the case of taxable years 
                beginning after 2007 and before 2010,
                  [(B) $2,000,000 in the case of taxable years 
                beginning in 2010, 2011, 2012, or 2013, and
                  [(C) $200,000 in the case of taxable years 
                beginning after 2013.] exceeds $2,000,000.

           *       *       *       *       *       *       *

          (6) Inflation adjustment.--
                  (A) In general.--In the case of any taxable 
                year beginning after 2014, the dollar amounts 
                in paragraphs (1) and (2) shall each be 
                increased by an amount equal to--
                          (i) such dollar amount, multiplied by
                          (ii) the cost-of-living adjustment 
                        determined under section 1(c)(2)(A) for 
                        such calendar year, determined by 
                        substituting ``calendar year 2013'' for 
                        ``calendar year 2012'' in clause (ii) 
                        thereof.
                  (B) Rounding.--The amount of any increase 
                under subparagraph (A) shall be rounded to the 
                nearest multiple of $10,000.
  (c) Election.--
          (1) * * *
          (2) Election [irrevocable].--Any election made under 
        this section, and any specification contained in any 
        such election, [may not be revoked except with the 
        consent of the Secretary. Any such election or 
        specification with respect to any taxable year 
        beginning after 2002 and before 2014] may be revoked by 
        the taxpayer with respect to any property, and such 
        revocation, once made, shall be irrevocable.
  (d) Definitions and Special Rules.--
          (1) Section 179 property.--For purposes of this 
        section, the term ``section 179 property'' means 
        property--
                  (A) which is--
                          (i) * * *
                          (ii) computer software (as defined in 
                        section 197(e)(3)(B)) which is 
                        described in section 197(e)(3)(A)(i)[, 
                        to which section 167 applies, and which 
                        is placed in service in a taxable year 
                        beginning after 2002 and before 2014] 
                        and to which section 167 applies,

           *       *       *       *       *       *       *

        Such term shall not include any property described in 
        section 50(b) [and shall not include air conditioning 
        or heating units].

           *       *       *       *       *       *       *

  (f) Special Rules for Qualified Real Property.--
          (1) In general.--If a taxpayer elects the application 
        of this subsection for any taxable year [beginning in 
        2010, 2011, 2012, or 2013], the term ``section 179 
        property'' shall include any qualified real property 
        which is--
                  (A) * * *

           *       *       *       *       *       *       *

          [(3) Limitation.--For purposes of applying the 
        limitation under subsection (b)(1)(B), not more than 
        $250,000 of the aggregate cost which is taken into 
        account under subsection (a) for any taxable year may 
        be attributable to qualified real property.
          [(4) Carryover limitation.--
                  [(A) In general.--Notwithstanding subsection 
                (b)(3)(B), no amount attributable to qualified 
                real property may be carried over to a taxable 
                year beginning after 2013.
                  [(B) Treatment of disallowed amounts.--Except 
                as provided in subparagraph (C), to the extent 
                that any amount is not allowed to be carried 
                over to a taxable year beginning after 2013 by 
                reason of subparagraph (A), this title shall be 
                applied as if no election under this section 
                had been made with respect to such amount.
                  [(C) Amounts carried over from 2010, 2011 and 
                2012.--If subparagraph (B) applies to any 
                amount (or portion of an amount) which is 
                carried over from a taxable year other than the 
                taxpayer's last taxable year beginning in 2013, 
                such amount (or portion of an amount) shall be 
                treated for purposes of this title as 
                attributable to property placed in service on 
                the first day of the taxpayer's last taxable 
                year beginning in 2013. For the last taxable 
                year beginning in 2013, the amount determined 
                under subsection (b)(3)(A) for such taxable 
                year shall be determined without regard to this 
                paragraph.
                  [(D) Allocation of amounts.--For purposes of 
                applying this paragraph and subsection 
                (b)(3)(B) to any taxable year, the amount which 
                is disallowed under subsection (b)(3)(A) for 
                such taxable year which is attributed to 
                qualified real property shall be the amount 
                which bears the same ratio to the total amount 
                so disallowed as--
                          [(i) the aggregate amount 
                        attributable to qualified real property 
                        placed in service during such taxable 
                        year, increased by the portion of any 
                        amount carried over to such taxable 
                        year from a prior taxable year which is 
                        attributable to such property, bears to
                          [(ii) the total amount of section 179 
                        property placed in service during such 
                        taxable year, increased by the 
                        aggregate amount carried over to such 
                        taxable year from any prior taxable 
                        year.
                For purposes of the preceding sentence, only 
                section 179 property with respect to which an 
                election was made under subsection (c)(1) 
                (determined without regard to subparagraph (B) 
                of this paragraph) shall be taken into 
                account.]

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    These bills would add a combined $310 billion to the 
deficit. Even though these bills were introduced individually 
with some bipartisan support, the opposition to these bills was 
based on the position that these tax provisions should not be 
made permanent by adding to the deficit without any revenue 
offset.
    To put the combined cost ($310 billion) into context, this 
total represents more than one-half of the entire federal 
deficit this year--the lowest it has been since President Obama 
took office. It represents nearly two-thirds of all non-defense 
domestic discretionary spending in 2014. It is more than three 
times what we spend annually on education, job training, and 
social services. It is five times more than we spend on 
veterans. And, it is five times more than we spend on medical 
research and public health.
    We also opposed the manner in which Republicans were 
proceeding--selecting six to make permanent without any offset 
from the approximately 60 tax provisions that expired last 
year. This approach was both fiscally irresponsible and 
fundamentally hypocritical.
    We found it hypocritical that, four months ago, Republicans 
let emergency unemployment insurance--expire for more than 1.3 
million Americans by arguing that an adequate offset had yet to 
be proposed. In early April, the Senate came to a bipartisan 
agreement on an offset after months of painstaking 
negotiations. Yet House Republicans still refuse to act.
    Further, we found it also hypocritical that the Republicans 
were in favor of passing these six tax bills at a cost of $310 
billion without an offset at the same time that they were 
requiring an offset for a provision stripped from another bill 
under consideration at the markup that helped foster children 
at a cost of $12 million.
    The consideration of these six tax bills should have been 
part of the consideration of all the expired tax provisions 
commonly referred to as ``tax extenders.'' The Republicans did 
not take up other tax extenders that also are important to 
Democratic Committee Members. Left to an uncertain fate are 
provisions like the Work Opportunity Tax Credit, the New 
Markets Tax Credit, and the renewable energy tax credits, as 
well as the long-term status of the Earned Income Tax Credit, 
the Child Tax Credit, and the American Opportunity Tax Credit.
            Sincerely,
                                            Sander M. Levin
                                                    Ranking Member.

                                  
