Issue link: http://read.dmtmag.com/i/134956
Washington Insider Tax Reform: The Time is Now! There's reason to believe that a bipartisan deal will happen this year. By Christian Klein Tax reform is high on the radar screen in D.C. at the moment. The hotly-charged partisan environment is a barrier to progress on many issues, but there's a sense that stars may be aligning for an historic, once-in-ageneration tax reform deal. U.S. Senate Finance Committee Chairman Max Baucus' (D-Mont.) decision to retire at the end of this Congress gives him more political room to maneuver. Both he and U.S. House of Representatives Ways & Means Chairman Dave Camp (R-Mich., who will be forced to give up his gavel at the end of next year due to GOP chairmanship term limits) are now thinking about their legacies. Nobody knows at this point if Baucus and Camp will succeed, but conventional wisdom says a tax deal must happen in 2013 if it's going to happen at all (2014 is a midterm election year) and it would be ripe for consideration in conjunction with the next debt ceiling increase debate early in the fall. Baucus and Camp both deserve credit for trying to make tax reform bipartisan. In the House, Camp has created an unusually transparent process to gather input from individuals, businesses, and interest groups about how to improve the tax code. AED has been front and center in that conversation. On April 10, AED Vice Chairman Tim Watters (Hoffman Equipment) was one of just five witnesses to appear with Camp at a House Small Business Committee tax reform hearing. The extensive comments that AED submitted to the Ways & Means Committee echoed the priorities that Watters articulated in his testimony. First, AED believes the tax code's complexity and unpredictability are undermining the nation's economic growth. We therefore strongly support simplifying and restoring long-term certainty to the nation's tax laws. Second, the equipment industry is dominated by pass-through entities whose owners pay the taxes. For tax reform to have broad economic benefits, corporate and individual reform must proceed simultaneously. Third, our members and their customers are capital-intensive. We need to improve the climate for investment. Camp has proposed making higher Sec. 179 small business expensing levels permanent (they've been temporarily increased in recent years as an economic stimulus). We support that idea, but we also believe Congress should look for other ways to encourage capital investment for companies of all sizes. Taking a hands-off approach to Like-Kind Exchange would be a good first step. Maintaining business interest deductions is also important. Fourth, we're urging Congress to undo some of the damage done by the Affordable Care Act by holding equipment distributors harmless from the new Medicare tax on passive income. Due to the complexities of the passive income rules, some dealer rental income will likely be subject to the tax, which we don't think brick and mortar companies like AED members were intended to pay. Fifth, the equipment industry is dominated by family-owned companies. Even with recent changes, the federal estate tax is still a burden, particularly to companies in capital intensive sectors like ours. We project that AED members are collectively spending close to $32 million per year on life insurance premiums to protect their companies from the tax. That's why we're urging lawmakers to come up with a new and simple way to protect family businesses and farms from having to pay the tax when an owner dies. Sixth, a large number of AED members use LIFO ("last in, first out"), an accounting method that has been falsely characterized as a tax preference. AED is telling lawmakers that repealing LIFO, as President Obama wants to do, would unfairly subject equipment distributors to hundreds of millions of dollars in retroactive tax liability. Finally, the problems surrounding the federal highway program are actually a tax problem. The Highway Trust Fund gets its money from the gas tax and other user fees, but they're not adequate to support current investment levels or needs. We're urging Congress to use a tax reform deal as an opportunity to create new revenues to restore the highway program's fiscal solvency. Our friends on the Hill have told us that when it comes to tax reform everything – including popular preferences like the home mortgage interest deduction – is on the table. That means there's an historic opportunity to improve the tax environment for AED members and make our country more competitive. But it also means deductions on which AED members have long relied are at risk. We hope you'll join us in the fight! Christian klein (caklein@aednet.org) AED's vice president of Government Affairs and Washington counsel. He can be reached at 703-739-9513. June 2013 | Construction Equipment Distribution | www.cedmag.com | 51 51_washington insider_KP.indd 51 5/31/13 1:07 PM