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February 2013

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Washington Insider Fiscal Cliff Bill Makes Tax Reform Even More Likely in 2013 The focus will shift to the business side of the tax debate, and for AED members that could be a good thing. By Christian Klein With the fiscal cliff drama behind us, many in the nation's capital are asking whether tax reform is still the top priority for the 113th Congress. It is. Here's why: The fiscal cliff bill (aka the American Taxpayer Relief Act or ATRA) permanently extended the 10, 25, 28 and 33 percent tax brackets for those earning up to $400,000 per year ($450,000 for joint filers). It also permanently extended capital gains rates (except for high earners), marriage penalty relief, child tax credits, exclusions for employerprovided educational assistance, student loan interest deductions, and Alternative Minimum Tax (AMT) relief. ATRA also included permanent estate and gift tax reform in the form of a 40 percent top rate and $5 million per person indexed exemption. Groups like AED that represent family-business dominated industries aren't thrilled by the top rate increase (it was 35 percent last year), but locking in a higher exemption (which was set to fall to $1 million this year) and indexing it to inflation is a big victory. Not everyone likes what's in the bill and high earners will wind up paying more, but it's no exaggeration to say that because of the ATRA, individuals and families now have more tax certainty than they've had in many years. The bill also contained a number of "tax extenders" (extensions of current law) important to the business community, including the research and development tax credit, higher Sec. 179 expensing ($500,000 with a $2 million phase-out threshold), 50 percent bonus depreciation, and the Work Opportunity Tax Credit. However, most of the business provisions were targeted to specific industries and regions – for example: a tax credit for mine rescue team training and safety equipment, seven-year depreciation life for auto racetracks, credit for railroad track maintenance expenses, tax incentives for Puerto Rican manufacturing, and credits for building energy efficient homes. The key difference is that while the bulk of ATRA's individual provisions are permanent, almost all of the business items expire at the end of 2013. On the downside, that doesn't provide the long-term certainty for which businesses have been clamoring, but the fact that the provisions are temporary creates a significant impetus for Congress to focus on these issues (and, of course, groups like AED will be demanding that lawmakers do so). Another silver lining for the business community is that because Congress has permanently dealt with so many of the issues affecting individuals, the business tax reform debate may occur in a more dispassionate political environment. There are philosophical differences between Democrats and Republicans on some corporate and business tax issues ("clean energy" tax incentives come to mind), but things like cost recovery periods, basis adjustments to the stock of S corporations making charitable contributions, and industryspecific preferences don't have the same partisan overtones. Finally, by continuing so many of the business community tax preferences for one more year, ATRA negotiators did the business community a favor by maintaining our negotiating power and allowing us to spend the coming year lobbying for reform, not working on old business. AED has been at the forefront of the tax debate, most prominently as a leader of the coalition to extend the depreciation bonus for one more year. But we've also been busy preparing for the coming tax reform debate. Among other things, we recently conducted the most thorough equipment distribution industry tax survey in the association's history. The response was unprecedented, with more than a quarter of AED members providing detailed information about their corporate structures, revenues, LKE deferrals, LIFO reserves, and amounts spent on estate tax-related insurance and professional services. The survey also helped us identify our members' top tax priorities: Protecting business interest deductions and industry accounting methods, preventing Congress from lengthening cost recovery periods for construction equipment, policies to encourage capital investment, and creating new user fees to support infrastructure investment. AED is already sharing this new data with lawmakers to help them understand how distributors are affected by the current tax code and how it could be improved to create a more favorable business environment. Our data-driven advocacy effort is off to a great start, but keep in mind that there are literally thousands of other industry groups also engaged in the process. As the tax reform debate gets underway, the groups with the most actively involved members are going to be the most successful. We're looking forward to working with distributors around the country in the months ahead to make sure AED is one of them. Christian klein (caklein@aednet.org) AED's vice president of Government Affairs and Washington counsel. He can be reached at 703-739-9513. February 2013 | Construction Equipment Distribution | www.cedmag.com | 51 51_washington insider_KP.indd 51 1/30/13 3:50 PM

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