Overview
Title
To amend the Internal Revenue Code of 1986 to provide tax incentives for the establishment and operation of small food retail businesses in areas with high food retail concentration and low levels of competition.
ELI5 AI
This bill wants to help small food stores make more money by giving them special money gifts, like tax breaks, if they open or improve their stores in places where there aren't many other food stores to compete with. This way, the stores can sell food to people who need it, and it's easier for them to grow and hire more workers.
Summary AI
The H.R. 701, known as the “Restoring Establishment Deductions and Uplifting Competition to Ease Food Prices Act” or the “REDUCE Food Prices Act,” aims to amend the Internal Revenue Code of 1986 to provide tax benefits for small food retail businesses operating in areas with heavy food retail competition but low competition overall. The bill proposes increasing tax credits for rehabilitation and work opportunities, enhancing bonus depreciation, and providing new business credits to help these small businesses thrive. It targets businesses making most of their revenue from selling food and situated in less competitive markets, as defined by specific economic measures. This legislation would apply to eligible businesses making qualified investments after its enactment.
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AnalysisAI
General Summary of the Bill
The proposed legislation, known as the “Restoring Establishment Deductions and Uplifting Competition to Ease Food Prices Act” or the "REDUCE Food Prices Act," aims to amend the Internal Revenue Code of 1986. The bill seeks to provide tax incentives to small food retail businesses situated in areas with high food retail concentration and low levels of competition. These incentives include increased rehabilitation tax credits, work opportunity tax credits, bonus depreciation, and qualified business income deductions. Additionally, a new tax credit is introduced for small food retailers that have recently started their operations.
Summary of Significant Issues
One major issue with the bill is the ambiguous definition of what constitutes a "qualified small food retail business." The bill relies on another section for this definition, which could allow for varied interpretation and possible misuse.
A second issue arises from the use of the Herfindahl-Hirschman Index as a measure to define "low-competition areas." This index may not accurately reflect local competition and economic conditions, leading to potential misapplication of the benefits.
A third concern is the lack of clear justification for the specific increases in tax deductions and credits. Without demonstrated reasoning, the bill might appear to offer undue advantages to certain businesses, potentially raising fairness issues.
The complexity of legal language and numerous numerical substitutions in the bill may make it challenging for laypeople to understand, leading to possible misinterpretation or misuse.
Finally, the absence of monitoring or reporting requirements for the new food retail business tax credit raises the risk of abuse or misallocation, possibly resulting in unintentional tax revenue deficits.
Impact on the Public
Broadly, the bill seeks to encourage new and existing small food retail businesses in underserved areas, which could potentially lead to increased access to food in areas that lack competition. By proposing tax incentives, the bill aims to reduce food prices through competition, benefiting consumers who live in these areas.
Impact on Specific Stakeholders
Small Food Retail Businesses: This legislation stands to substantially benefit small food retail businesses by reducing their operational costs through tax credits. However, not all businesses might qualify due to unclear or cumbersome eligibility requirements.
Large Corporations and Competitors: Larger food retailers operating in these areas might face increased competition, which could affect their market share and pricing strategies negatively.
Economists and Policy Analysts: The use of technical economic measures like the Herfindahl-Hirschman Index in defining low-competition areas invites analysis and critique, as it might not perfectly capture the nuances of market dynamics.
Tax Policy Makers and Enforcers: The complexity and specificity of tax code amendments necessitate careful application and oversight. Without clear guidelines and oversight mechanisms, those responsible for implementing tax policy might find the bill challenging to enforce correctly.
Overall, while sectioning off specific incentives for small food retailers in low-competition areas seems like a strategic move toward fostering local commerce and reducing food prices, the bill requires refinements to ensure that its provisions are clear, justified, and fair to all stakeholders involved.
Financial Assessment
The H.R. 701 bill, titled the "Restoring Establishment Deductions and Uplifting Competition to Ease Food Prices Act," aims to provide tax incentives for small food retail businesses operating in areas where there is a high concentration of food retail outlets but low levels of competition. This bill seeks to empower these businesses through various financial mechanisms outlined primarily as tax credits and deductions. Here is a detailed examination of the financial references within the bill:
Financial Allocations and References
- Increased Rehabilitation Tax Credit
- The bill proposes an increase in the tax credit for rehabilitation expenses. Specifically, it raises the credit percentage from the standard 20 percent to 25 percent for qualified small food retail businesses. This is intended to encourage investment in the physical premises of these businesses.
The definition of a "qualified small food retail business" plays a crucial role here. These businesses must have at least 70 percent of their annual average gross receipts attributable to the sale of food or produce, and they must operate in designated low-competition areas. The reference to such a large percentage indicates a significant focus on businesses primarily dealing in food retail.
Increased Work Opportunity Tax Credit
The amendment adjusts the ceilings for the work opportunity tax credit. It modifies these limits by increasing the existing figures: changing $6,000 to $8,000, $12,000 to $14,000, $14,000 to $16,000, and $24,000 to $26,000. This adjustment suggests a substantial financial benefit for eligible businesses that hire and therefore could encourage employment within these communities.
Increased Bonus Depreciation
The bill also proposes changes to bonus depreciation applicable to qualified small food retail businesses, increasing percentages from the standard amortization levels by 10 percent points each in various instances. It signifies an enhanced write-off for property placed in service or plants planted, indicating a direct incentive for capital investment.
New Food Retail Business Tax Credit
- The bill introduces a new tax credit for businesses that began operations within the past three years, providing a 15 percent credit on qualified investment amounts, which includes capital investment in property, facilities, or equipment.
Related Issues and Implications
The financial allocations make extensive use of increased percentages and amounts, but several potential issues arise:
- Definition and Misuse Concerns
The definition of a "qualified small food retail business" requires referencing another statutory section which could create confusion or misapplication. The bill's reliance on a broad financial threshold ($200,000,000) suggests a very inclusive definition of eligible businesses, which may lead to unqualified businesses exploiting the benefits.
Herfindahl-Hirschman Index Usage
Using the Herfindahl-Hirschman Index to define low-competition areas might not entirely reflect true local competition, potentially granting financial advantages inappropriately based on a potentially inadequate measure.
Perceived Favoritism
The lack of explicit justification for the increased credit and deduction percentages could appear as arbitrary, leading to perceived favoritism for specific business types without documented reasons.
Complexity and Accessibility
The legal and mathematical complexity within sections detailing tax changes is notable. The increased limits and percentage substitutions might be challenging for small business owners to navigate without specialized financial knowledge, possibly leading to errors in application.
Potential for Abuse
- The absence of specific monitoring and controls for the new tax credits may open avenues for misuse. This lack of oversight could result in significant tax revenue losses if businesses improperly claim eligibility.
Overall, the financial aspects of the bill are structured in a way to stimulate investment and support small food retail businesses in underserved areas, but the complexity and potential for misuse are noteworthy considerations.
Issues
The definition of 'qualified small food retail business' in Sections 2, 3, 4, 5, and 6 is not fully provided within the bill, requiring cross-referencing another section (section 47(e)(2)(A)). This creates potential ambiguity and may allow broad interpretations or misuse, leading to businesses unfairly benefiting from the incentives.
The use of the Herfindahl-Hirschman Index in Section 2 to define 'low-competition area' may not fully reflect local economic conditions or competition levels. This could result in businesses in certain areas receiving tax benefits despite not genuinely lacking competition.
The lack of justification for the increased deduction percentages and credit amounts in Sections 2, 3, 4, 5, and 6 could be seen as favoring specific businesses or industries without clear rationale, leading to perceptions of favoritism or unfair advantage.
The complexity and legal jargon in Sections 3 and 4, involving multiple numerical substitutions, can be burdensome and difficult to comprehend for individuals without a tax or legal background, potentially leading to misinterpretation or misuse.
The absence of specific monitoring, reporting requirements, or safeguards in Section 6 for the new food retail business tax credit could lead to potential abuse or misuse of the credits, resulting in significant unintended reductions in tax revenue.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the bill specifies its short title, which is the "Restoring Establishment Deductions and Uplifting Competition to Ease Food Prices Act," also referred to as the "REDUCE Food Prices Act."
2. Increased rehabilitation tax credit for qualified small food retail businesses Read Opens in new tab
Summary AI
In this section, the rehabilitation tax credit for small food retail businesses is increased from 20% to 25% for certain projects. To qualify, these businesses must have most of their sales from food, have annual gross receipts under $200 million, and be located in areas with low retail competition.
Money References
- “(2) QUALIFIED SMALL FOOD RETAIL BUSINESS DEFINED.— “(A) IN GENERAL.—For purposes of paragraph (1), the term ‘qualified small food retail business’ means a business— “(i) which is described in section 38(c)(5) (determined by applying ‘$200,000,000’ for ‘$50,000,000’ in such section), “(ii) at least 70 percent of the annual average gross receipts of which are attributable to the retail sale of food or produce, and “(iii) which is located in a low-competition area.
3. Increased work opportunity tax credit for qualified small food retail businesses Read Opens in new tab
Summary AI
The proposed changes to Section 51 of the Internal Revenue Code aim to increase the work opportunity tax credit limits for qualified small food retail businesses. Specifically, it raises the maximum credit amounts for wages paid, effective for taxable years starting after the law is enacted.
Money References
- SEC. 3. Increased work opportunity tax credit for qualified small food retail businesses. (a) In general.—Section 51(b)(3) of the Internal Revenue Code of 1986 is amended— (1) by striking “The amount” and inserting “(A) IN GENERAL.—The amount”, and (2) by adding at the end the following new subparagraph: “(B) INCREASED LIMITATION FOR QUALIFIED SMALL FOOD RETAIL BUSINESSES.—In the case of wages paid by an employer that is a qualified small food retail business (as defined in section 47(e)(2)(A)), subparagraph (A) shall be applied— “(i) by substituting ‘$8,000’ for ‘$6,000’, “(ii) by substituting ‘$14,000’ for ‘$12,000’, “(iii) by substituting ‘$16,000’ for ‘$14,000’, and “(iv) by substituting ‘$26,000’ for ‘$24,000’.”. (b) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
4. Increased bonus depreciation for qualified small food retail businesses Read Opens in new tab
Summary AI
The bill section increases bonus depreciation rates for qualified small food retail businesses. For certain properties and plants serving these businesses, the applicable percentage rates are raised from 60% to 70%, 40% to 50%, and 20% to 30%, effective for items placed in service or planted after the enactment date.
5. Increased qualified business income deduction for qualified small food retail businesses Read Opens in new tab
Summary AI
In this section, the Internal Revenue Code is adjusted to increase the qualified business income deduction from 20% to 25% for businesses classified as qualified small food retail businesses. This change applies to tax years starting after the law is enacted.
6. New food retail business tax credit Read Opens in new tab
Summary AI
The proposed section introduces a tax credit for new small food retail businesses, which offers them a 15% credit on certain investment costs. This credit is meant to apply to businesses that have started operations in the last three years and is part of a broader general business credit.
45BB. New food retail business credit Read Opens in new tab
Summary AI
For the purposes of tax credits, a new small food retail business can receive a credit equal to 15% of what they spend on capital investments like property, facilities, or equipment. This credit is applicable if they started operations in the last three years.