AED Washington Insights Newsletter|
Prepared by Christian A. Klein, AED Vice President of Government Affairs
and the AED Washington team
In this Issue:
Much to Do, Too Little Time: Congress Stumbles to Year's End as Crises Loom|
It's that season again when the leaves change color, the temperature drops, and the congressional agenda winds down for the year. Unfortunately, lawmakers only have a handful of legislative days left to tackle our nation's most significant challenges before the session ends and Congress goes home for the holidays.
As we head into the second session of the 113th Congress, comprehensive tax reform must be a top priority for lawmakers to create a simpler and fairer tax code. A number of tax provisions change or expire at the end of the year that will negatively impact the country's principal job creators and there is no immediate plan to deal with them.
In April, AED told the House Ways & Means Committee that equipment distributors are desperate for a tax code that encourages economic growth and job creation. In the association's comments on the committee's small business tax reform discussion draft, AED called for comprehensive tax reform to create a more competitive business environment while maintaining tax provisions that encourage investment. Specifically, AED urged Congress to:
Our nation's leaders must also hammer out long-term solutions to the budget crisis and debt ceiling. Despite last month's continuing resolution (CR) to re-open the federal government, funding once again expires on Jan. 15, 2014, setting up another showdown early next year when the new legislative session is just winding up. Word on the Hill is that the budget conference committee required by the CR will not produce a major breakthrough. In order to avert yet another crisis, Congress will have to work together in the final days of the session to at least lay the groundwork for a modest deal since lawmakers return a mere week before government funding runs out.
- Simplify and restore long-term certainty to the nation's tax code
- Proceed simultaneously with corporate and pass-through reform to ensure both large and small businesses benefit from improvements to the code
- Promote capital investment by increasing Sec. 179 small business expensing levels, continuing the business interest deduction, and protecting like-kind exchange for construction equipment
- Ensure equipment distributors are held harmless from the Affordable Care Act's new 3.8 percent tax on passive income
- Protect family businesses and farms from the threat of being destroyed by the estate tax
- Oppose any effort to repeal the LIFO ("last in, first out") accounting method
- Increase the gas tax and create new user fee revenues dedicated solely to infrastructure investment to put the highway trust fund back on solid, long-term fiscal footing
The federal highway program also faces drastic cuts over the next year if Congress doesn't find alternative revenue streams to keep the Highway Trust Fund (HTF) solvent. According to data released by the Congressional Budget Office (CBO), in FY 2015 the HTF will be unable to support any highway or transit spending, jeopardizing more than $50 billion in annual investment. The potential loss of almost $36 billion in core annual highway investment alone would take an enormous toll on the equipment industry.
Each dollar in highway spending generates 6.4 cents in equipment market activity (sales, rental, and product support) and dealerships average $606,000 in sales per employee. AED estimates the HTF "year zero" scenario will cost the equipment industry $2.3 billion in lost market activity and threaten more than 3,700 dealership jobs. Additionally, the highway reauthorization legislation known as MAP-21 expires in 2014, prompting another round of congressional negotiations to fund our nation's surface transportation network. Infrastructure investment must be a top priority as we head into in the new year.
Lastly, the House and Senate must work together in a conference committee to resolve differences in their respective water infrastructure bills. The House legislation (H.R. 3080) provides $8 billion in funding for U.S. Army Corps of Engineers' construction programs and streamlines environmental reviews to speed project delivery, while the Senate bill (S. 601) authorizes $12 billion for waterway construction and improvement over the next decade. Additionally, the Senate gives the executive branch authority to determine which projects will be undertaken, while the House requires congressional review and approval. Given the strong bipartisan support in both chambers, observers are optimistic these differences will be resolved quickly and a final conference report will be completed in the coming months.
Combined with other big ticket items like immigration reform, the new health law, and a comprehensive farm bill, Congress has a daunting agenda for the foreseeable future. The association looks forward to working with lawmakers to ensure small business isn't left behind in the looming legislative battles.
[ TOP ]
Bipartisan Senate Infrastructure Bank Legislation Introduced|
On Nov. 14, a bipartisan group of senators introduced legislation that would create a new financing authority, or infrastructure bank, to build and maintain our nation's crumbling surface transportation network.
Sponsored by Sens. Mark Warner (D-Va.) and Roy Blunt (R-Mo.), the Building & Renewing Infrastructure for Development & Growth in Employment Act (S. 1716), or the BRIDGE Act, would establish an independent, nonpartisan financing authority to complement existing U.S. infrastructure funding. The authority would provide loans and loan guarantees to help states and localities fund road, bridge, rail, port, water, sewer, and other significant infrastructure projects.
Under the plan, the infrastructure bank would receive initial funding of up to $10 billion, which would incentivize private sector investment and make up to $300 billion in total project financing.
The Transportation Construction Coalition, of which AED is a member, sent a letter to Capitol Hill on Nov. 13 expressing support for the legislation and highlighting the linkage between U.S. economic competitiveness and the performance of the nation's transportation infrastructure network.
While AED encourages finding creative solutions to maintain our roads and bridges, the association believes financing mechanisms like an infrastructure bank are supplemental to, not a substitute for, ensuring the long-term solvency of the federal highway program. Keeping highway spending at current levels ($41 billion) will plunge the federal Highway Trust Fund $365 billion into the red over the next 20 years. Closing that gap will require new funding in the form of gas tax increases or other new user fees.
Tea Party Republicans introduce bill to devolve federal highway program
While there is broad support for federal infrastructure investment on Capitol Hill, a fringe group of lawmakers are proposing to devolve the highway program entirely to individual states. Rep. Tom Graves (R-Ga.) and Sen. Mike Lee (R-Utah) have introduced bicameral legislation (H.R. 3486)(S. 1702) to transfer almost all authority over federal highway and transit programs to the states over a five-year period.
AED strongly believes the federal highway program must be preserved to guarantee robust infrastructure investment, protect national security, and ensure continued economic competitiveness. To urge your lawmakers to make federal highway funding a top priority, visit AEDaction.org.
[ TOP ]
House Passes WRRDA, Appoints Water Infrastructure Conference Committee Members|
On Oct. 23, the U.S. House of Representatives approved the Water Resources Reform & Development Act (H.R. 3080) in resounding bipartisan fashion by a vote of 417-3, demonstrating that lawmakers can put aside their political differences (at least occasionally!) to tackle our nation's challenges. The Senate passed its version of the bill earlier this year.
Several key differences must be addressed before final legislation can be delivered to President Obama for his signature. The Senate bill (S.601) authorizes $12 billion for waterway construction and improvement over the next decade, $4 billion more than the House legislation. Additionally, the Senate gives the executive branch authority to determine which projects will be undertaken, while the House requires congressional review and approval. Critics have argued S. 601 cedes too much authority to the president, since the Army Corps of Engineers would approve projects in the future without congressional input.
On Nov. 14, the House leadership appointed conferees to resolve the differences between the two chambers' bills. House conferees include Republicans Bill Shuster (Pa.), John Duncan (Tenn.), Frank LoBiondo (N.J.), Sam Graves (Mo.), Shelley Moore Capito (W.Va.), Candice Miller (Mich.), Duncan Hunter (Calif.), Larry Bucshon (Ind.), Bob Gibbs (Ohio), Richard Hanna (N.Y.), Daniel Webster (Fla.), Tom Rice (S.C.), Markwayne Mullin (Okla.), Rodney Davis (Ill.), Doc Hastings (Wash.), and Rob Bishop (Utah).
Representing the Democrats are Nick Rahall (W.Va.), Peter DeFazio (Ore.), Corrine Brown (Fla.), Eddie Bernice Johnson (Texas), Tim Bishop (N.Y.), Donna Edwards (Md.), John Garamendi (Calif.), Janice Hahn (Calif.), Rick Nolan (Minn.), Lois Frankel (Fla.), Cheri Bustos (Ill.), and Grace Napolitano (Calif.).
The Senate leadership nominated its conferees earlier this month. Representing the Senate are Democrats Barbara Boxer (Calif.), Max Baucus (Mont.), Tom Carper (Del.), Ben Cardin (Md.), and Sheldon Whitehouse (R.I.), and Republicans David Vitter (La.), John Barrasso (Wyo.) and James Inhofe (Okla.).
Given the strong bipartisan support in both chambers, observers are optimistic these differences will be resolved quickly and a final conference report will be completed in the next few months.
The WRRDA process also has important implications for other federal infrastructure programs. The House Transportation & Infrastructure Committee has a new chairman this year – Rep. Bill Shuster (R-Pa.) – and this is the first major piece of legislation he's shepherding through Congress. So far, Shuster's getting high marks for his political acumen and coalition building. There are high hopes the positive atmosphere he's helping to create will smooth the way for next year's highway reauthorization.
[ TOP ]
Bipartisan Effort Seeks to Put Brakes on HOS Rule|
On Oct. 30, Rep. Richard Hanna (R-N.Y.) introduced legislation to delay implementation of federal hours-of-service (HOS) regulations requiring truck drivers to take a 30-minute break for every eight hours of driving.
The TRUE Safety Act (H.R. 3413), co-sponsored by Reps. Mike Michaud (D-Maine) and Tom Rice (R-S.C.), calls for the Government Accountability Office (GAO) to conduct an independent assessment of the methodology the Federal Motor Carrier Safety Administration (FMCSA) used to determine the new rules. The legislation also prevents the regulations from being implemented until at least six months after the GAO submits its assessment to Congress.
FMCSA's guidance document explains that a "short-haul" operations exemption will apply to drivers (commercially and non-commercially licensed) who operate within 100 air-miles of their normal work reporting location, as well as noncommercially licensed drivers who operate within a 150 air-mile radius of the site where they report for duty.
Despite this clarification, the HOS rules remain complex and cumbersome to navigate. AED needs input from members about the impact HOS issues have on your companies. If you'd like to be involved in our work on this issue, contact AED Senior Director of Government Affairs Daniel Fisher at email@example.com or 703-739-9513.
[ TOP ]
SBA Report Underscores Need for Simultaneous Corporate & Small Business Tax Reform|
On Nov. 5, the Small Business Administration released a report, "Measuring the Benefit of Federal Tax Expenditures Used by Small Business," highlighting that pass-through companies rely more heavily on certain tax provisions than large corporations.
Ridding the federal tax code of all business expenditures in order to lower the corporate tax rate would likely result in negative unintended consequences for small firms, the study states. Often taxed as individuals, pass-through entities would receive little or no benefit from a reduction in the corporate rate, yet could lose expensing methods like Sec. 179 that are critical to incentivizing future investment.
"The SBA report simply underscores what AED has been telling Congress for more than a year: Don't pay for corporate tax reform by shortchanging pass-through companies," AED Vice President of Government Affairs Christian Klein said. "Small and medium-sized family companies are being stifled by the complexity and uncertainty in the current code. To succeed, tax reform needs to improve the tax environment for small and big businesses alike."
AED 2013 Vice Chairman Tim Watters of Hoffman Equipment Co. echoed these sentiments on April 10 in his testimony at a House Small Business Committee hearing titled "Small Business Tax Reform: Growth Through Simplicity."
More information about the Ways & Means Committee's small business reform efforts can be found at http://waysandmeans.house.gov/taxreform/.
To urge your lawmakers to make tax reform a top priority, visit AEDaction.org.
[ TOP ]
AED Continues Push to Exempt Industry from Passive Income Tax|
As the year quickly comes to a close, AED is pressing harder than ever to educate policymakers on the negative impact the Affordable Care Act's new 3.8 percent Medicare tax will have on the construction equipment industry.
Passive loss rules like the Medicare tax seek to ensure individuals deriving their income from passive activity (financial transactions, etc.) cannot write off losses to avoid paying income taxes. The new Medicare tax would apply to individuals and pass-through entities with adjusted gross income greater than $250,000 in the case of joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case. Because most equipment distributors are pass-through entities (so the companies' taxes are those of the individual owners), Congress inadvertently forced brick-and-mortar companies that rent construction equipment to pay a tax that was not meant for them.
AED has been working for more than a year to ring the alarm bells about this issue on Capitol Hill. Rep. Peter Roskam (R-Ill.) has agreed to send a letter to the Internal Revenue Service asking it to resolve the questions surrounding equipment industry rental income. This could be done through the rulemaking to be finalized in December concerning implementation of the new 3.8 percent tax, by creating a new regulatory exception to the passive activity rules, or through some other mechanism to be determined by the agency.
Additionally, Congress could solve the problem by adding a new paragraph to the law granting equipment distributors the same treatment as other industries that the law specifically exempts, like real estate professionals.
With time running out for a resolution to this situation before the new tax year begins, AED is continuing to urge lawmakers and regulators to exempt equipment distributors from the new Medicare tax. Stay tuned to Washington Insights as the story develops.
[ TOP ]
Lower Your 2013 Tax Bill by Investing in Your Company|
With the depreciation bonus set to end on Dec. 31, time is running out for your company and customers to cut your 2013 tax bills by making new capital investments.
The depreciation bonus was first enacted to help pull us out of the 2000-2002 recession. The law lapsed in 2005 but was reinstated in 2008 as the economy again took a turn for the worse. Congress has renewed the law ever since; but given recent signs of economic strength, it's unlikely lawmakers will extend the depreciation bonus again. Word on the Hill is that Congress won't act on a year-end tax extenders bill in December, making it even less likely depreciation bonus will be renewed.
Here's what you need to know to take advantage of the depreciation bonus in the time that's left:
In a nutshell, the law lets a company that buys new equipment in 2013 write off 50 percent of the value plus the percentage of remaining basis that the business would normally deduct in the first year. That reduces the company's taxable income, which in turn reduces the company's tax bill.
Here's an example of how the depreciation bonus works. Assume you buy a new $100,000 asset with five-year Modified Accelerated Cost Recovery System (MACRS) life. Under the temporary law, you can write off $50,000 (50 percent bonus depreciation) plus $10,000 (20 percent of remaining $50,000 in basis) for a total write-off (taxable income reduction) of $60,000. If you're in the highest tax bracket, that can mean a savings of $15,840 off your 2013 tax bill.
To qualify, the equipment must be:
A few additional things to keep in mind:
- New (first use must occur with the taxpayer claiming the bonus depreciation)
- Depreciable under MACRS with a cost recovery period of 20 years or less
- Put in service in calendar year 2013 (so tell your customers not to wait until Dec. 31 to place their orders!)
- Purchased in 2013
More information about the law is available at http://www.depreciationbonus.org and at http://www.irs.gov/publications/p946/index.html.
- There's no limit on the value of the assets that can be depreciated.
- The depreciation bonus can be combined with Sec. 179 (which allows some companies to expense new and used capital asset purchases) for even more tax savings.
- The depreciation bonus isn't mandatory (you can opt out).
- Depreciating more of an asset's value this year means you'll have less to depreciate in the future, so your tax bills in the out-years could be higher (but consider the time value of the money – would you rather have Uncle Sam holding onto it or be able to use it now to pay workers, make other investments in your company, etc.)
- The law can also put you in a negative tax situation if you sell the asset before the end of its tax life. However, the pain can be negated in the short-term by taking advantage of Like-Kind Exchange rules.
- Some states have disallowed the depreciation bonus, so claiming it on your federal return may create some complexities when you file with the state.
Of course, the tax code is incredibly complex and every company's tax situation is unique. This article isn't intended to be tax or legal advice. Be sure to check with your tax professional before making any purchase with the intention of claiming depreciation bonus.
[ TOP ]
AED Government Affairs Team Hits the Road|
In a final push before the start of the holiday season, AED's government affairs team is traveling the country to engage young leadership in the equipment industry and connect distributors with their lawmakers at home.
On Nov. 20, AED Senior Director of Government Affairs and Associate Counsel Daniel Fisher traveled to Oklahoma for the Ditch Witch Orange Edge Leadership program, where he updated emerging industry leaders on what's happening in Washington, what AED is doing to push the association's policy priorities, and how equipment distributors can get involved on legislative issues.
On Nov. 21, AED Vice President of Government Affairs Christian Klein was in Orlando to participate in the association's Leadership Academy and brief current and future industry leaders about the range of threats and opportunities confronting equipment distributors on Capitol Hill. At the top of the list is the risk that the highway program could collapse in 2015, eliminating $2.5 billion in equipment market activity nationwide. Tax reform was also front and center. Klein underscored the fact that all the issues AED tackles on the policy front directly impact dealers' bottom lines.
"AED's Government Affairs Program is about your company's markets, costs of doing business, or both," Klein said. He also underscored the importance of making a habit of political engagement early in your career, telling attendees, "It takes time to build relationships, credibility, and visibility and to learn how to influence the process, so the earlier in your career you start, the more effective you'll be in the long-run."
On Dec. 3, Klein will travel to Little Rock, Ark., to meet with the Arkansas local distributors group, where attendees will break bread with Democratic Sen. Mark Pryor and learn of the challenges facing the equipment industry in the coming legislative session.
The end of the year is shaping up to be an eventful one. If you would like to know more about the AED Government Affairs Program, please contact Daniel Fisher at firstname.lastname@example.org or 703-739-9513.
[ TOP ]
AED PAC Closes Out Another Banner Year|
Records are made to be broken and AED PAC continued to reach new heights in 2013.
Distributors contributed $68,600 in 2013, breaking the previous nonelection year record of $52,550 in 2011. Historically, it is more difficult for campaigns and political fundraisers to raise money during nonelection years than it is during election years.
Just because the 2013 AED PAC fundraising campaign is over doesn't mean PAC activity is complete. In order continued AED PAC's growth, please make sure your solicitation consent is up to date. To learn more about AED PAC and the association's political program, you must first provide "prior approval" in accordance with the Federal Election Campaign Act. Giving consent doesn't obligate you to do anything. It just allows AED to communicate with you about the PAC. Only executives and owners of AED dealer member companies that have given solicitation consent may contribute to AED PAC. If you have questions about AED PAC or federal rules on political giving, please contact AED Vice President of Government Affairs Christian A. Klein at email@example.com or 703-739-9513.
The following industry leaders have made personal contributions to AED's program in 2013:
Chairman's Caucus ($2,500)
Gregg Erb, Erb Equipment Company, Inc.
Doug Fabick, Fabick CAT
Roy Kern, Jr., Equipment Corporation of America
Ed Kirby, Jr., Kirby-Smith Machinery, Inc.
Tom Kirchoff, Cleveland Brothers Equipment Co., Inc.
Dale Leppo, Leppo Rents/ Bobcat of Akron
Joseph Paradis, BRAMCO
Whit Perryman, Vermeer Equipment of Texas, Inc.
Alvin Richer, Arnold Machinery Co.
Mike Soley, Jr., Miller, Bradford & Risberg, Inc.
Wes Stowers, Stowers Machinery Corporation
Ken Taylor, Ohio CAT
Capitol Club ($1,000)
Ron Barlet, Bejac Corporation
Walter Berry, Berry Companies, Inc.
Bruce Bowman, Star Equipment, Ltd.
Michael Brennan, BRAMCO
Craig Burkert, ROMCO Equipment
Charlie Clarkson, ROMCO Equipment
Rick Dahl, Metrolift, Inc.
Chris Gaylor, Power Equipment Co.
Chad Gerondale, Construction Machinery Industrial, LLC
Larry Glynn, CMW Equipment
Dennis Heller, Stephenson Equipment
Bob Henderson, Associated Equipment Distributors
Christian A. Klein, Associated Equipment Distributors
Dennis Kruepke, McCann Industries, Inc.
Glenn Leppo, Leppo Rents/ Bobcat of Akron
P.E. MacAllister, MacAllister Machinery Co., Inc.
Pat McConnell, Clyde/West Inc.
Robert G. Mullins, ROMCO
Robert O. Mullins, ROMCO
Chris Palmer, Wood's CRW Corp.
Mike Quirk, Wagner Equipment Co.
Don Shilling, General Equipment & Supplies, Inc.
Mike Walsh, Walsh Equipment
Tim Watters, Hoffman Equipment Co.
Denny Vander Molen, Vermeer MidSouth, Inc.
Gary Vaughn, OCT Equipment, Inc.
Charles Wood, Wood's CRW Corp.
Washington Team ($500)
Jim Anderson, Anderson Machinery Company
Kayden Bell, Arnold Machinery Co.
Paula Bernard, C.N. Wood Co., Inc.
John Burress, J.W. Burress, Inc.
David Scott, Intermountain Bobcat
Mike Sheehan, Sheehan Mack Sales and Equipment Inc.
Fred Berry, Berry Companies, Inc.
Bryan Campbell, Wheeler Machinery
Jessica Eyde, Pioneer Equipment & Supply Co.
[ TOP ]