NRCA’s President, Nelson Braddy, Responds to Proposed Legislation to Reform Cost Recovery Provisions of the Federal Tax Code

Senate Finance Chairman Max Baucus (D-Mont.) recently released a discussion draft of proposed legislation to reform the cost recovery provisions of the federal tax code. This draft would repeal the current depreciation system, referred to as Modified Accelerated Cost Recovery System, and replace it with a new system that pools assets into separate categories. The draft also instructs the Congressional Budget Office (CBO) to analyze the economic depreciation rates of tangible assets and authorizes the U.S. Department of Treasury to review CBO’s findings to determine whether assets should be reassigned depreciation schedules or whether new ones should be created.

Under the Baucus proposal, the changes in these depreciation schedules would generate nearly $700 million in revenue for the government during the next decade. This would be used to offset cutting the 35 percent corporate income tax rate. Unfortunately, Baucus’ proposal cuts tax rates for only C-corporations but not for pass-through businesses that pay income taxes at the individual rate.

The Rosemont, Ill.-based National Roofing Contractors Association supports comprehensive tax reform that boosts economic growth by substantially lowering individual and corporate tax rates. Roughly 75 percent of its members are S-corporations, limited liability companies and other pass-through entities. Cutting taxes for entrepreneurs that file at the individual rates and as large corporations is essential for the roofing industry. NRCA is disappointed Baucus’ discussion draft does not include reductions in individual income tax rates.

In addition, NRCA supports reforming the depreciation schedule for commercial roof systems. The current 39-year depreciation schedule is an obstacle to economic growth and more than double the average life cycle of a commercial roof system, which is 17 years. Baucus has proposed extending the depreciation schedule for real property, including commercial roof systems, to 43 years, which does nothing to remove the incentive for building owners to forego a full retrofit to a failing roof in favor of making only piecemeal repairs. In addition, extending the depreciation schedule will further complicate business owners’ tax decisions; do nothing to promote economic growth; and fail to advance greater energy efficiency within the commercial building sector. Baucus has stated the goal of this proposed legislation is to “establish a system of cost recovery that better approximates the decline in the economic value of an asset.” However, 43 years to depreciate a commercial roof system does not accurately represent its economic value.

NRCA is pleased to see Baucus included higher Section 179 expensing limits in his discussion draft, which would permanently increase the expensing limits to $1 million and be indexed for inflation.

Baucus has requested comments regarding the discussion draft be submitted by Jan. 17, 2014. NRCA will submit its comments to the tax code in a comprehensive manner. The association remains committed to working with lawmakers to pass progrowth tax policies that benefit the roofing industry and the economy.

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