Wyden unveils business tax proposal

Senate Finance Committee ranking member Ron Wyden (D-Ore.) rolled out a proposal on Tuesday to simplify the rules for how businesses deduct the costs of equipment and other capital investments.

{mosads}The discussion draft was unveiled on the same day that the Finance Committee held a hearing on business tax reform. The revenue-neutral proposal keeps “accelerated depreciation,” which allows businesses to write off investments more quickly than they depreciate.

During the hearing, Wyden said his proposal would make the tax code fairer for small businesses. He said the current tax code “tells small businesses that their dollar is worth less” compared to sophisticated businesses.

Wyden’s proposal would replace the current cost-recovery system with a more streamlined one.

Under current law, businesses have to navigate more than 100 sets of tax rules to figure out the deductions on investments. They may have to calculate depreciation for an investment under three different methods and have to make calculations for every asset separately, Wyden said.

But the proposal would allow businesses to compute depreciation for the whole company using only six calculations under one method. Assets would be put into six pools that are based on current accelerated depreciation schedules, according to an overview from Wyden’s office.

Wyden would also expand businesses’ ability to sell used machinery and equipment and use the proceeds to reinvest in new equipment on a tax-free basis. And the deductions businesses can take for assets that are in their first year of service would be increased.

Additionally, the plan would help to modernize the depreciation rules and reinstate the Treasury Department’s authority to update asset lives to address new technology.

The current rules were last updated almost 30 years ago, and as a result investment in some industries is more expensive than investment in others, according to the overview. The Congressional Budget Office has estimated that the effective tax rate on investments in computers is almost 40 percent, while the effective tax rate on railroad track and mining structures is about 15 percent.

Several witnesses at the hearing supported Wyden’s proposal.

Sanford Zinman, vice president and tax policy chairman of the National Conference of CPA Practitioners, said that “any kind of simplification would be welcome by business owners.”

Gayle Goschie, vice president of Goschie Farms in Oregon, said Wyden’s proposal would help to put her business on “a fair playing field.”

Wyden isn’t the first lawmaker to propose overhauling the depreciation rules.

In 2013, then-Senate Finance Committee Chairman Max Baucus (D-Mont.) released his own discussion draft aimed at simplifying the cost recovery rules, but it rolled back accelerated depreciation. Meanwhile, some Republican lawmakers and current and former GOP presidential candidates have proposed that businesses be able to deduct the full cost of investments at the time they are made.

Updated at 10:50 a.m.