So with the caveat that “things change, but as I write this,” I think I can predict a few events on Washingtonrelated events on the horizon that are bound to occur since they involve the sun rising in the east and setting in the west.
Some time before the end of the year, Congress will need to address significant action items on its agenda. First and foremost is the hardly noticed fiscal deadline baked into the October compromise resolution that ended the government shutdown and raised the debt ceiling. By Dec. 13, a conference committee of 29 House and Senate lawmakers must craft an agreement on long-term revenue and spending projections known as a budget resolution. Even though budget resolutions are broad framework documents, the discussion is bound to bring out differences of opinion between Democrats and Republicans over specific items, like tax hikes, federal spending reductions, entitlements and the next round of mandatory spending cuts under sequestration scheduled to hit in mid- January. But don’t be surprised if the committee misses its deadline without any consequences; a budget resolution is nonbinding and does not have the effect of law. However, it is the easiest and fastest way to settle major fiscal differences because it sidesteps some of the procedural hurdles in the Senate and can trigger real changes to the tax code.
Whether Congress can or cannot settle on a budget resolution, another deadline looms just a few weeks later. When the big ball drops at midnight Dec. 31, 2013, more than 55 pro-business tax incentives will expire, including many that HVACR contractors take advantage of when they make capital improvements in their businesses.
But this is not a new item on Congress’ agenda – it’s the same tax extender debate that occurs when the calendar says December. Congress has made a habit of putting off difficult tax reform decisions by passing short-term solutions that only create uncertainty. Tax incentives cost the Treasury in lost revenues, but they also spur business investment and help certain special interests. The tax code is full of breaks for all kinds of industries. Did you know that manufacturers of wooden arrow shafts designed for children’s archery sets are exempt from paying a 43 cent excise tax on hunting and fishing equipment?
Instead of making dozens of popular tax incentives permanent and allowing small business to rely on their continued existence so they can plan for the future, Congress routinely passes one- or twoyear “extensions.”
The Section 25C residential energy tax credit that allows eligible homeowners to claim up to $150 for installing a qualified furnace or $350 for installing a qualified central air conditioner, heat pump or hot water heater expires at the end of the year. Since 2008, legislators have extended the 25C tax credit four times. But the extension usually comes after seasonal planning for the winter heating season, which diminishes its potential impact as a sales tool.
Also set to expire are the expanded expensing limits under Section 179 and the bonus depreciation allowances for small businesses that invest in new vehicles, equipment and other improvements. These two incentives have been around for decades and are very popular with the small business community, which has asked many times that they be made permanent.
The Commercial Building Tax Deduction (CBTD), one of the few energy use incentives targeting commercial building owners, is in need of renewal for the first time since 2008. It provides a maximum incentive of $1.80 per square foot for improvements to a building’s lighting, HVAC and envelope that result in at least 50 percent modeled energy savings when compared to a “reference building.” After many building owners found the energy savings targets and the compliance costs too difficult to meet, some modifications were made that allowed building owners to claim partial credits.
Members of the tax writing committees say they will address extenders before the end of the year, but until they do, many small businesses don’t know if they can rely on a promise.
For further evidence that Congress likes to punt on big issues, think back to the October vote that ended the government shutdown. In reality, the deal passed did not resolve the problem, it just funded the government through January 15 and raised the debt ceiling enough to avoid default through Feb. 7. So unless Congress passes an appropriations package for FY14 and a longer term solution to the debt ceiling, our schedule will have us doing this all over again in a few weeks.
Finally, don’t forget that 2014 is a midterm election year and the last year before President Obama’s lame duck term. The government shutdown hurt Republicans, and many who watch Congress say the Senate is out of reach (they need to pick up six seats from Democrats), and the House majority may be at play. If Democrats wrest 17 seats from Republicans in November, they would control both ends of Pennsylvania Avenue.
I can’t predict much about what will happen in Washington over the next few weeks or months, but I can tell you they will have to work on the following: dealing with a budget resolution, finalizing the FY14 appropriations, raising the debt ceiling and running for reelection. Congress can delay action on some things, but eventually they have to deal with the big issues.
Charlie McCrudden is vice president of government affairs for the Air Conditioning Contractors of America. Contact him at email@example.com.