The move by Congress late last year to approve only a one-year extension of certain tax breaks, including the research and development (R&D) tax credit and bonus depreciation, sets the stage for renewed tax debate this year.

President Obama signed into law a one-year extension of more than 50 of the tax breaks on December 19. Some of the measures are considered must-pass items, such as education and mortgage premium deductions. Others are widely accepted, such as the R&D credit.

The extension capped a year in which Congress first looked at much more comprehensive tax reform but then shifted to talk of piecemeal permanent extensions and/or a two- or three-year extension. But with the mid-term elections overshadowing the latter part of 2014 and White House opposition to a longer-term compromise that had been in the works, Congress gave up hope for anything but a one-year extension before 2014 ended.

That shunted most of the difficult decisions into 2015 under the new Republican-controlled Congress. House Republicans have immediately voted to implement a new accounting procedure called “dynamic scoring” that will make tax cuts easier. Such a scoring procedure would take into account economic benefits generated by a tax cut when evaluating the costs of that tax cut.

Even with such a move, industry leaders agree that tax reform is challenging and the debate could stretch into years. If the discussions extend beyond 2015, Congress would need to adopt another short-term extension to ensure the continuation of some of the key tax breaks.

“Broad-based, comprehensive tax reform is difficult,” said NBAA president and CEO Ed Bolen. “We have a new Congress and new leadership. Whether this will be the year, we’ll have to see.”

Strong Support for Tax Breaks

Regardless of the outcome of more comprehensive reform, support for the tax breaks in the 2014 package is strong enough that Congress has some incentive to renew them again this year. “There is broad-based support for [measures] like the R&D credit,” Bolen added.

The R&D tax credit is worth millions to larger manufacturers and is proportionately as important to smaller ones, noted GAMA president and CEO Pete Bunce. Encouraging is that R&D was one of the few tax credits that House lawmakers had attempted to make permanent. “Making R&D permanent would be huge for our members. It helps keep up the development cycle,” said Bunce, noting that R&D has been a significant factor for helping lift companies out of the doldrums of the economic downturn.

Another provision adopted in the so-called “tax extenders” package in 2014 was a measure permitting small businesses to expense certain assets, such as aircraft parts. Strongly supported by industry groups, the Section 179 expensing measure provides a boost for small aviation businesses, said NATA president and CEO Tom Hendricks.

A third measure included in the 2014 package and followed closely by industry was bonus depreciation, which enables businesses to deduct 50 percent of qualified assets, including business aircraft, purchased last year. But bonus depreciation remains one of the more controversial tax measures, with key Democrats saying its purpose was to jump-start the economy and that it was never intended to become a permanent tax change. Some Democrats also question its effectiveness as a job creator.

Industry groups, however, disagree, calling bonus depreciation an important stimulus for the economy, which translates into more jobs. NBAA had noted that bonus depreciation boosts investment, “unleashing more potential growth for the aircraft industry and, in fact, all companies investing in business assets.”

“We are starting to see positive signs in the industry. Things are generally improving,” said Hendricks, adding that bonus depreciation is one of the measures that can help boost the momentum of that improvement.

A coalition of 500 industry groups, including GAMA, NBAA and NATA, had urged Congress late last year to act quickly to get the most benefit out of bonus depreciation. While companies that purchased aircraft last year will be able to take advantage of the provision, the late-2014 passage of the tax extenders package limited the use of bonus depreciation to spur investment to the final few weeks of the year.

While glad that bonus depreciation was adopted, industry leaders were disappointed that the late passage of the bill generated probably only a few sales, said Bunce.

“Unfortunately we are starting again,” added Hendricks. 

However, more important to them was the fact that the measure was packaged with the tax extenders bill, making it more likely that it will be included in future bills.

Also important to them is that business aircraft were not treated separately, something the White House and some key lawmakers have advocated in recent years, at least in terms of depreciation schedules. “We should not be singled out,” Bunce said. “Business aviation should be included with every other manufactured good that is treated as a depreciable asset.”

The multi-industry coalition has already begun discussions for another push this year to renew bonus depreciation. Some backers are hoping Congress will renew the tax provisions short-term while they continue to debate long-term tax reform. “We’d like to see an extension earlier rather than later,” said Bill Deere, NATA senior v-p for government and external affairs. “It’s certainly the logical thing to do. It takes time to move a massive tax bill.”