The U.S. business community is getting a bit of a scare this week, and not just because it’s Halloween. As House Republicans rush to finalize a draft of their 1,000-page-plus tax bill, expected to arrive Wednesday, lobbyists are scrambling to find out what exactly is in the bill — and to see how they can influence the fine details that can translate into huge gains or losses for the industries they represent.
But the last-minute decisions about what to include will likely involve some of the most difficult trade-offs the tax writers will have to make as they search for new sources of revenue. While some of the potential changes that would affect both businesses and individuals have gained broad attention — including new rules for 401(k)s and the fate of the state and local deduction — others that would have a significant impact on specific business sectors have remained largely under the radar. Here are five of the corporate tax changes the House is considering right now that have businesses worried, according to Bloomberg — but be forewarned, some of these will take you deep in the darkest bowels of the tax code!
A phased-in cut of the corporate tax rate. Gradually lowering the corporate tax rate over five years instead of doing it in one fell swoop would affect all kinds of businesses, and as Monday’s stock market drop indicated, it’s providing corporate American with quite a fright. The White House has pushed back on the idea, but reports indicate that Republicans are considering it nevertheless. Lobbyists will have to make it through the dark night, however, to see how this one turns out.
No more LIFO accounting. Companies currently can use a “last in, first out” accounting system to value their inventory, but the new tax plan may eliminate that option. This would force some companies in the oil, retail and auto sectors to pay up on deferred tax liabilities they accrued through the use of LIFO accounting, raising an estimated $79 billion over 10 years.
Reduced deductibility of advertising expenses. Businesses can write off the full cost of advertising immediately under the current rules, but that may change to a gradual deduction over 10 years. A 2014 version of this proposed rule change estimated that it would raise $169 billion over a decade.
Reduced deduction for research and experimentation. Manufacturers benefit from the current system, which allows for the immediate deduction of research and experimentation costs. A new rule creating a five-year deduction schedule would raise an estimated $192 billion over 10 years.
Eliminating the deduction for domestic production. The GOP tax framework stated that since corporate tax rates would be reduced across the board, the special deduction for domestic production, which applied to much as 9 percent of a company’s taxable income, should be eliminated. Nixing the tax break is estimated to raise $115 billion over 10 years.