Republican leaders hope that they can extend dozens of expiring tax provisions worth into the hundreds of billions of dollars even before they take control of the Senate in January, clearing the way for other work and gaining an early victory on tax policy.
Soon-to-be Senate Majority Leader Mitch McConnell listed passing the provisions, known as “extenders,” just behind a government funding bill as a priority for when the Senate reconvenes for the first time since the midterm elections this week.
“We’ll be talking about whether to do the tax extender package,” McConnell said in a press conference in Louisville, Ky., following his re-election last week.
“[T]here’s a whole lot of unfinished business sitting there, some of which it might be advantageous to get out of the way,” McConnell said. “The Democrats may want to do it and we may want to do it in order to clear off some of the necessary work that’s simply been undone in the dysfunctional Senate.”
The extenders include 55 temporary tax provisions that expired at the end of 2013, including business provisions such as credits for research and experimentation as well as measures that affect individuals, such as the state and local tax deduction. They also include energy credits, most notably the renewable electricity production tax credit that has aided the U.S. wind farm industry.
Top Senate Republicans involved in tax policy see the extenders package as a way to reduce uncertainty for businesses and possibly make permanent some of the provisions, such as the research and experimentation credit, that most affect investment.
In addition to providing certainty to businesses, there’s another reason legislators would like to resolve the status of the expired provisions in the lame duck: The Internal Revenue Service says the tax-filing season could be delayed if the extenders are not addressed before the end of November, giving legislators little time to act.
Yet there is uncertainty about how Republicans will coordinate between the Senate and the House, in which conservative lawmakers have opted to pass provisions one-by-one on a permanent basis.
The Senate Finance Committee had moved a measure reauthorizing most of the provisions for two years in the spring, a package that would be a convenient vehicle for legislation in the lame duck.
But speaking at an event last week, a tax staffer for the House tax-writing committee suggested that a two-year measure would face trouble in that chamber.
“I’m not even sure the House, especially after the election, can do a two-year bill,” said George Callas, staff director of the House Ways and Means Subcommittee on Select Revenue Measures. “Looking at the lay of the land, I think a two-year bill that didn’t get any permanence … would be a very heavy lift in the House.”
Callas said at the conference hosted by Bloomberg BNA that some conservatives in the House would prefer to “punt” the issue until the next Congress with a retroactive one-year bill, allowing them to renegotiate the issue with a GOP Senate in place.
Jim Lyons, a tax counsel for Sen. Orrin Hatch, R-Utah, on the Senate Finance Committee, responded that leaving extenders for the next year was a “a misguided view” because it would involve significantly delaying tax filing season or doing nothing for the tax provisions that were expired for all of 2014. “Neither of those seems an optimal outcome, and it could be avoided by reaching a deal in the lame duck,” said Lyons, who cautioned that he was giving his own view and not necessarily Hatch’s.
Looming over the process are questions about the fiscal impact of extending the provisions. The two-year extension approved by the Senate Finance Committee in April would have increased the deficit by $84.1 billion over 10 years, according to the Joint Committee on Taxation and Congressional Budget Office. Making the credits permanent, as the House has sought to do, would inflate the estimated cost by even more, by up to $1 trillion over 10 years for all the provisions, according to the Committee for a Responsible Federal Budget, a centrist nonprofit that advocates fiscal restraint.
Yet many Republicans and Democrats agree that those figures are due to budgeting conventions that use baselines that don’t reflect the fact that the temporary provisions are for all meaningful purposes permanent, as they are regularly extended.
The bigger obstacle to reform might be House Republican concerns about cronyism through credits that benefit companies, as well as resistance to doing anything other than permanent policy.
House Ways and Means Committee Chairman Dave Camp “believes it is critical that we pass these policies on a permanent basis in order to strengthen our economy,” said a representative. Camp is retiring at the end of the year.
Whether the differences between the Senate and House can be resolved through making some provisions permanent and others temporary or horse-trading remains to be seen.
“We think the odds substantially favor passage of an extenders package before the end of the year. But like much in Washington today, what may be possible for policy reasons can be derailed for political reasons, making this an issue where sudden changes in fortune would not be surprising,” wrote Deloitte tax policy analysts Jon Traub and Jeff Kummer in a research note.
|Wind Watch relies entirely
on User Funding