Jan 25, 2022 - Politics & Policy

Businesses brace for April tax bill as BBB stalls

President Biden is seen speaking last Friday.
Photo: Yuri Gripas/Abaca/Bloomberg via Getty Images

With President Biden's Build Back Better legislation on ice, business groups are preparing to change course and use the China competitiveness bill to try to preserve some of their cherished research-and-development tax deductions.

Why it matters: By eying the United States Innovation and Competition Act (USICA) to extend the R&D deductions, companies like Amazon, Microsoft and Boeing are hoping to avoid an estimated $8 billion bill in mid-April.

  • They're also preparing for the distinct possibility Build Back Better — which includes some $800 billion in corporate tax increases — is unlikely to get back on track this spring.
  • "No one is saying Build Back Better is dead, but there's real angst about whether it gets enacted in time, or if USICA or something else moves first," said Rohit Kumar.
  • Kumar, the co-leader of PwC's national tax office, is also working with a coalition of business groups on the R&D issue.
  • "Build Back Better is still the path of least resistance, if it can get done by March,” said Kumar. “Otherwise, USICA or other measures have to be considered."

Between the lines: After Congress passed President Trump's 2017 tax reforms, businesses were able to deduct certain R&D investments in the same year they were made, instead of amortizing them over five years.

  • If Congress doesn’t restore the Section 174 one-year amortization , some companies will face their first bigger payment in mid-April, when their Q1 tax bill is due.
  • For 2022, the total cost will be close to $22 billion, followed by $37 billion in 2023.
  • Sen. Todd Young (R-Ind.) said: “Congress should extend full expensing for R&D costs and do it now to give businesses certainty as they make important investment decisions for 2022 and beyond."

Go deeper: The push for preserving the R&D one-year deduction for companies is similar to the bipartisan effort to extend the enhanced child tax credit for families.

  • Both the enhanced CTC and the R&D one-year deduction expired at the end of last year.
  • Their extension had been included in Biden's $1.75 trillion budget reconciliation package, but Sen. Joe Manchin (D-W.Va.) and Senate Republicans scuttled it in December.

The big picture: As he looks for a bipartisan legislative victory to help him get BBB back on track, the president is pressing Congress to pass USICA.

  • “Let’s get another historic piece of bipartisan legislation done,” he said last Friday. “Let’s do it for the sake of our economic competitiveness and our national security.”
  • In June, the Senate voted 68-32 in favor of legislation that includes $52 million for domestic semiconductor manufacturing. It’s been held up in the House.
  • House Democrats plan to unveil their revamped version this week, Punchbowl News reported Monday morning.

The bottom line: There's bipartisan support in both chambers for doing something on R&D, but the timing is in doubt.

  • “This is a classic 'pain is inevitable, suffering is optional' situation,” said Kumar. “The 174 fix is going to happen; the only question is how much suffering will there be for the U.S. economy along the way?"
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