Capitol Hill

Capitol Hill has been abuzz about reforming the broken U.S. tax system. During the past few years, the Senate Finance Committee and House Ways and Means Committee have held 50 hearings gathering information and testimony to help them overhaul the tax code. Both committees have reached a critical point in the process, but timing and political ramifications could make tax reform difficult to accomplish in the 113th Congress.

The situation

NRCA believes lowering tax rates for all businesses will help drive economic growth, create jobs and make the U.S. more competitive. With 75 percent of NRCA members organized as pass-through businesses that pay their business taxes on individual tax returns, it is imperative any tax reform proposal lowers individual and corporate tax rates.

Currently, individuals pay a top tax rate of 39.6 percent; this does not include other targeted taxes on high-income earners that could reach up to 50 percent in some states. Corporations have a tax burden of 35 percent, the highest corporate tax rate in the global economy. Construction businesses are unable to take advantage of many tax expenditures that help lower their tax burdens, causing them to face one of the highest effective tax rates at 31 percent.

One segment of the tax code NRCA has long worked to reform is the depreciation schedule for commercial roof systems. The current schedule for nonresidential real property, which is how commercial roof systems are classified in the tax code, stands at 39 years. The schedule has increased greatly throughout the years; between 1981 and 1993, the depreciation schedule was raised from 15 years to 39 years.

NRCA has worked with Congress to introduce legislation to decrease the depreciation schedule to 20 years for qualified energy-efficient roof systems, which would accelerate demand for such roof systems. This would put the schedule more in line with the average lives of most commercial roof systems, which is 17 years as concluded by Ducker Worldwide, a leading industrial research firm based in Troy, Mich.

Congress' actions

In the spring of 2013, Ways and Means Committee Chairman Dave Camp (R-Mich.) released a discussion draft that focused on reforming the taxation of small businesses. The committee solicited feedback from the business community regarding tax priorities; NRCA submitted comments and met with congressional staff to stress the importance of lower tax rates, a fairer depreciation schedule for commercial roof systems and other tax policies that affect the roofing industry. The committee has yet to unveil a full tax reform proposal, and with elections on the horizon in November, it is unclear whether a full proposal will be released this year.

In the Senate, Finance Committee Chairman Max Baucus (D-Mont.) released a discussion draft that would drastically change the way assets are capitalized. It would repeal the current Modified Accelerated Cost Recovery System and replace it with a system that actually extends the depreciation schedule for real property, including commercial roof systems, to 43 years and reduces only the corporate tax rate. One encouraging portion of the proposal would authorize the Treasury Department to reassign depreciation schedules to certain assets after a review by federal agencies.

The combination of not addressing the individual side of the tax code and increasing the depreciation schedules for real property is not something NRCA will support. NRCA submitted comments to the Finance Committee advocating for lower rates for all businesses and a 20-year depreciation schedule for commercial roof systems. The current mismatch between an asset's economic life and its depreciation schedule is contradictory to efforts to provide equity in the tax code.

The Baucus proposal is unlikely to gain any traction if, as appears likely, Baucus is confirmed as the new ambassador to China, but it could be used in future tax reform discussions. Sen. Ron Wyden (D-Ore.), who is expected to take over when Baucus leaves the Senate, has worked to forge bipartisan agreements on a number of issues and supports tax reform. NRCA hopes to work with him to pass meaningful tax reform going forward.

No end in sight

Although tax reform is a laudable goal, it faces many obstacles. The president has not made tax reform a top issue, and the two political parties remain far apart on the key outcomes regarding how much revenue a reformed code should bring in and what to do with those revenues: pay down the deficit and invest a portion in infrastructure or dramatically cut tax rates across the board.

As the debate carries on, NRCA remains committed to ensuring its members' voices are heard in Washington, D.C.

Drew Felz is NRCA's manager of legislative affairs.