Capitol Hill

Many lawmakers in Congress have indicated enacting comprehensive tax reform is a top priority for 2013. To be successful, lawmakers will need to move quickly this spring because enacting legislation will become more difficult as the 2014 mid-term elections approach.

Simplifying the code

During the past two years, congressional tax writing committees have held numerous hearings aimed toward developing support for legislation that simplifies the tax code, which has become especially complicated since tax reform was enacted in 1986.

For many lawmakers, the ultimate goal of tax reform is to lower tax rates for most, if not all, taxpayers to provide greater incentives for private investment and entrepreneurial risk taking. The intended result is to increase the economic growth rate, which is vital to solving the federal government’s budget problems.

To avoid the prospect of lower tax rates adding to federal deficits, it is necessary for lower rates to be coupled with limiting or eliminating many deductions, credits and other tax shelters. Congress created these so-called “tax expenditures” to essentially subsidize various forms of desired economic activity.

Conflicting approaches

There is significant bipartisan support for the general concept of tax reform. However, there is considerable disagreement about the specific components that should be contained within any tax reform legislation.

One major obstacle to tax reform is Republicans insist it should be deficit-neutral in the short term with the goal of reducing budget deficits through increased revenues that come from greater economic growth. In contrast, most Democrats, including President Obama, believe tax reform must raise revenue immediately through tax increases, primarily for high earners. Whether this significant disagreement regarding the purpose of tax reform can be overcome is a key question.

Another obstacle to tax reform is the wide array of industries, some with powerful lobbying operations in Washington, D.C., that will fight any effort to scale back existing tax provisions that favor their constituencies. Examples include the mortgage interest deduction, charitable contributions deduction and tax credits for various types of activities. It will be difficult to overcome efforts to preserve these and other tax breaks that may be targeted for elimination to provide for lower tax rates.

One concern is some lawmakers have proposed Congress proceed with lowering the corporate tax rate without lowering rates for S corporations, partnerships and other businesses whose owners pay taxes at the individual rate. There is pressure among large corporations to lower the corporate rate, which at 35 percent is the highest among all developed nations, for U.S. businesses to be more competitive in global markets.

NRCA and a coalition of business groups have worked during the past two years to educate Congress about the effects corporate-only tax reform could have on small and midsized businesses.

Effect on the industry

Another significant consideration for the roofing industry is whether Congress will consider revising depreciation schedules in any tax reform legislation.

NRCA has been preparing for this possibility by working to build support for legislation that would reduce the depreciation schedule for commercial roof systems that meet a benchmark energy-efficiency standard from 39 to 20 years. This legislation, sponsored by Reps. Tom Reed (R-N.Y.) and Bill Pascrell (D-N.J.) and Sens. Ben Cardin (D-Md.) and Mike Crapo (R-Idaho), has garnered significant bipartisan support within Congress.

However, the prospect for reforming depreciation schedules is uncertain. According to congressional budget rules, this would reduce government revenue and add to budget deficits. There even is speculation some in Congress may try to lengthen depreciation schedules to raise revenue to “pay for” lower rates in a tax reform bill.

NRCA contends bringing the depreciation schedule for commercial roof systems in line with the life of these assets will accelerate economic activity within the roofing industry and, ultimately, increase economic growth and government revenues while reducing energy consumption.

This is just a brief overview of a few key issues that may be addressed in potential tax reform legislation, which could have significant implications for the roofing industry. NRCA will remain actively engaged with Congress about this issue as the debate proceeds.

Duane L. Musser is NRCA's vice president of government relations.