Capitol Hill

Members of Congress have been working for several years to lay the groundwork for passage of comprehensive tax reform legislation. Whether their efforts will succeed in producing a simplified tax code and in lowering tax rates for businesses and individuals likely will be determined during the next few months.

Setting priorities

In April, NRCA submitted statements to two House committees outlining its priorities for tax reform as determined by NRCA's Government Relations Committee. The objective of tax reform is to lower rates and simplify the tax code to facilitate the ability of entrepreneurs to grow their businesses and create jobs. To lower rates without adding to annual government budget deficits, it is necessary to reduce or eliminate many of the deductions, credits and other tax expenditures that have been written into the code since tax reform last was enacted in 1986.

NRCA's congressional testimony outlined a number of roofing industry priorities for tax reform legislation.

Showing support

NRCA supports comprehensive reform that lowers tax rates for corporations and pass-through entities. If tax rates are reduced only for C corporations, as some lawmakers have proposed, pass-through businesses would be put at a disadvantage and could see their taxes increase. A recent study conducted by Ernst & Young found corporate-only reform would increase the income taxes paid by pass-through construction businesses 9 percent on average, or $26 billion annually.

Congress also should facilitate greater economic growth in the roofing industry by reforming the depreciation schedule for commercial roof systems, which was set at 39 years in 1993, an increase from 15 years in the early 1980s. The current schedule is an obstacle to growth because it provides an incentive for building owners to perform piecemeal repairs rather than complete retrofits. A study conducted by Ducker Worldwide, "Comprehensive Nonresidential Building Analysis to Estimate the Current Reality of Roofing Longevity," concluded moving to a 20-year depreciation schedule, which more closely matches the life of the asset, would facilitate the creation of nearly 40,000 new jobs among contractors and manufacturers.

NRCA has been working in support of commercial roof system depreciation reform for many years, and Reps. Tom Reed (R-N.Y.) and Bill Pascrell (D-N.J.) are leading the House effort. If comprehensive tax reform moves in Congress, it may be the best opportunity for depreciation reform in many years. However, because reducing depreciation schedules is considered a revenue loser for the government under congressional budget rules, lawmakers will be limited on what they can include in tax reform without negatively affecting the deficit. Their first priority will be to significantly lower tax rates for all taxpayers across the board.

NRCA also supports a tax reform framework, proposed by Ways and Means Committee Chairman Dave Camp (R-Mich.), that simplifies the code, lowers tax rates and modernizes the rules that govern pass-through entities. This will allow businesses to retain more of their earnings to invest in creating jobs, spurring greater levels of economic growth.

Another key component of Camp's proposal NRCA supports is permanently increasing Section 179 expensing for small businesses to $250,000 and allowing this provision to be used for qualified real property. This would allow a business to immediately write off a sizable portion of an equipment investment during the year the investment is made, lowering the business's tax burden and simplifying tax preparation.

Finally, NRCA supports H.R. 892, "S Corporation Modernization Act of 2013," by Reps. Dave Reichert (R-Wash.) and Ron Kind (D-Wis.) and urges this legislation be included in tax reform. H.R. 892 improves the rules governing pass-through businesses, many of which have not been updated in more than 50 years, to provide entrepreneurs with increased access to capital. Key provisions in H.R. 892 include permanently setting the built-in gains tax holding period at five years (a decrease from 10 years), increasing the gross receipts threshold from 25 percent to 60 percent on passive investment income and expanding the ability of pass-through businesses to make charitable donations.

Hope for success

NRCA will continue working with lawmakers to enact tax reform that benefits all roofing businesses. It likely will be clear by the end of the year whether Congress will be successful in passing tax reform that helps accelerate U.S. economic growth.

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