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May 21, 2024

Ways & Means Tax Subpanel holds hearing on business provisions

The May 20 House Ways & Means Tax Subcommittee Field Hearing in Erie, PA on "Creating More Opportunity and Prosperity in the American Rust Belt" largely focused on Opportunity Zones, which are designated economically distressed communities for which investors may defer capital gains tax on investments and exclude gain from taxable income based on holding period requirements. There was also significant discussion of TCJA pre-cliff business tax changes that are addressed in the House-passed Tax Relief for American Families and Workers Act (H.R. 7024), which would provide a return to R&D expensing and the prior calculation for interest deductions and prevent a bonus depreciation phasedown.

In an opening statement, Subcommittee Chairman Mike Kelly (R-PA) recognized the importance of immediate expensing for R&D and 100% bonus depreciation. He also mentioned the Opportunity Zones Improvement, Transparency, and Extension Act (H.R. 7467), which would strengthen Opportunity Zones with reporting requirements along with expanded incentives. Ranking member Gwen Moore (D-WI), who represented Democrats at the hearing, said, regarding Opportunity Zones, there is a need to ensure a connection between benefits for investors and a solid public purpose for the funding.

Full Committee Chairman Jason Smith (R-MO), who has convened several field hearings, said it is important for members to go outside of Washington, D.C. and see "real America," and learn what policies may be beneficial or detrimental to average citizens. Members are already working to examine the effects of scheduled 2025 TCJA expirations with GOP tax teams, including the Community Development Team led by Rep. Kelly, which will consider the need for more mainstream investment, expanded housing opportunities, and support for small communities, he said.


  • Drew Whiting, CEO of Erie Downtown Development Corporation said it is crucial that Opportunity Zone benefits are continued.
  • Shafron "Shay" Hawkins, President and CEO of the Opportunity Funds Association discussed how Opportunity Zones are targeting investment in areas that have been deindustrialized.
  • Jason Spore, owner of Ippa Pizza Napoletana, testified regarding the impact of the Opportunity Zone in Erie, PA, the policies that shape it, and the investments made by the organizations who invest.
  • Tom Tredway, President of Erie Molded Packaging, said, "For a small manufacturer like me, I can tell you from experience the R&D changes in 2022 caught me completely off guard. In 2023, a full year after R&D expensing had switched to an amortization requirement, I was presented with taxable income that was almost six figures higher than I had been anticipating."

Chairman Kelly asked about the impact of not restoring and extending R&D expensing. Tredway said much of his company's R&D is tied up in wages and the change to five-year amortization was frustrating. He said there needs to be R&D incentives, especially given how R&D is treated in other countries.

Ranking Member Moore pushed back against Republican assertions that Democrats will raise taxes, saying the TCJA made corporate provisions permanent and tax cuts for individuals temporary. In response, Rep. Lloyd Smucker (R-PA) said Republicans hope to make TCJA individual provisions permanent in 2025, on a bipartisan basis.

Rep. Dave Schweikert (R-AZ) said 100% expensing is considered the single biggest driver of economic expansion, and, along with R&D expensing, is a timing effect issue that "creates a virtuous capital cycle."

Rep. Ron Estes (R-KS) said since the switch from R&D expensing to five-year amortization, companies have been found to spend far less on R&D. Three-quarters of R&D spending is on wages and salaries, he said, making it primarily a jobs issue. Tredway said the policy change took the company off guard and, going forward, they will look at R&D differently, knowing it sets the company up for a higher tax bill.

Materials related to the hearing are available here.

Chairman Kelly's opening statement is available here.

Chairman Smith's opening statement is available here.

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Washington Council Ernst & Young

  • Any member of the group, at (202) 293-7474.