Capitol Hill

On May 29, President Bush signed HR 2—the Jobs and Growth Tax Reconciliation Act of 2003, commonly referred to as the Bush tax-cut plan—into law at a ceremony in the White House's East Room. The packed room included Bush's Cabinet; congressional leaders; and key business group leaders, including NRCA's Vice President of Government Relations Craig Brightup. Because NRCA is a Steering Committee member of the Tax Relief Coalition (the primary business coalition formed to work directly with the White House to advance Bush's proposal), NRCA was among a select group of industry associations present at the historic event.

The president's signature marked the culmination of months of intense lobbying on the part of NRCA and roofing industry allies to secure more favorable tax treatment for individuals and businesses. When measured in 2003 dollars, HR 2 is the third-largest tax cut in U.S. history behind former President Reagan's tax cut in 1981 and Bush's first tax cut in 2001. The legislation will provide $320 billion in tax cuts between now and 2013, as well as another $30 billion in state aid and tax-credit payments for people with children.

Bush's conviction is that the bill "is good for American families, good for American investors, and good for American entrepreneurs and small-business owners."

The details

In general, the bill accelerates several income-tax rate cuts scheduled to take place later in the decade, boosts federal child-tax credits, reduces rates for investors, and expands expensing for small businesses and depreciation measures for all businesses. According to the plan, 91 million taxpayers will receive, on average, a tax cut of $1,126 in 2003; 23 million small-business owners will see tax relief in excess of $2,000; 12 million elderly taxpayers will realize an average tax cut of $1,401; and 26 million investors with income from dividends and capital gains will enjoy, on average, an $800 tax cut.

Benefits

HR 2 includes some highly attractive and helpful provisions that should expand your cash resources, lower the cost of capital, and provide critical incentives for you to invest in and grow your business. Notably, the new law boosts the amount a small business can deduct annually for qualifying property, such as machinery, office equipment and computer software, to $100,000. This quadruples the current $25,000 annual limit under Section 179 of the Internal Revenue Code. However, the expensing limit for property begins to phase out at $400,000 and disappears at $500,000.

The new law also allows all businesses to take an additional first-year depreciation deduction equal to 50 percent of the adjusted basis for qualified property—an increase from the current 30 percent additional first-year depreciation deduction provided by the Job Creation and Workers Assistance Act of 2002. Generally, "qualified property" refers to new equipment and other capital investments—the property must be acquired after May 5, 2003, and before Jan. 1, 2005. Property does not qualify if there was a binding written contract for the acquisition in effect before May 6, 2003.

Other beneficial provisions for contractors include a drop in the maximum tax rate on long-term capital gains from 20 percent to 15 percent and lowering of the tax rate on dividends from 38.6 percent to 15 percent. These changes should benefit small-business owners who retain corporate earnings and pay capital-gains taxes on the increase in a business's value, as well as shareholders of Subchapter C corporations.

These provisions also provide an immediate benefit for manufacturers and distributors because contractors now have added incentive to purchase new equipment this year.

What to do

If you haven't done so already, speak with your tax counsel and accountant regarding the implications of HR 2 for your business. Note that the provisions of HR 2 are scheduled to sunset several years from now, but NRCA is working to make them permanent. And you can help. The next time you visit or write your members of Congress, let them know you favor making the provisions permanent. To find your elected leaders, logon to www.house.gov and www.senate.gov.

If you have any questions about the legislation, you can reach me at (202) 546-7584 or csilvertooth@nrca.net.

R. Craig Silvertooth is NRCA's director of federal affairs.