U.S. Treasury Secretary Jacob J. Lew called a potential agreement to revive and extend lapsed tax breaks “fiscally irresponsible,” casting uncertainty over year-end negotiations in Congress.
Lew was responding yesterday to talks between Republicans and Democrats that would make permanent a few of the tax breaks that expired at the end of 2013 and continue others through 2015. Lawmakers are discussing a package that could increase the U.S. budget deficit by more than $400 billion over a decade.
Lawmakers have been trying to reach a deal that would include some permanent extensions of breaks for businesses, such as the research tax credit, along with some for individuals, such as expansions of the child tax credit and earned income tax credit backed by the Obama administration.
The precise contours of a deal haven’t been set, and staff members from both parties are negotiating the deal. Companies including General Electric Co. (GE) and Intel Corp. have business breaks at stake in the talks.
“An extender package that makes permanent expiring business provisions without addressing tax credits for working families is the wrong approach, at the expense of middle-class families,” Lew said in a statement. “Any deal on tax extenders must ensure that the economic benefits are broadly shared.”
A collapse of the bipartisan talks may send both parties to their fallback positions, with House Republicans urging an extension only through 2014 and Senate Democrats seeking an extension through 2015.
“All parties are coming to the discussions in good faith,” Representative Dave Camp, chairman of the House Ways and Means Committee, said in a telephone interview yesterday. “It remains to be seen whether something will come together, but I think it’s worth a try.”
Just like they did after the 2010 and 2012 elections, lawmakers are working to piece together a deal on the collection of lapsed breaks known in Capitol Hill parlance as extenders.
The provisions – including incentives to donate food and hire workers from disadvantaged groups – have routinely been extended as a group, surviving attacks on individual items.
Republicans and many Democrats want to make permanent the research tax credit, which was first enacted in 1981. Other breaks being considered for permanent status include a provision letting small businesses write off more capital investments immediately, a state sales tax deduction and a tuition tax credit.
Democrats are focused on expansions of the child tax credit and earned income tax credit, which expire at the end of 2017, along with the production tax credit for wind energy.
Earlier this year, the House passed an expansion and extension of the research credit that would cost the U.S. government $155.5 billion over a decade in forgone revenue. On that vote, 62 Democrats joined 212 Republicans to back the bill.
Most of the tax breaks expired at the end of 2013, though those for low-income and middle-income families don’t lapse until the end of 2017. Democrats are trying to secure permanent extensions of those items in the negotiations.
The talks may fall apart because of divides over which policies deserve extensions and because the measure could add more than $400 billion to the deficit over the next decade.
“A lame-duck Christmas tree bill that extends and expands everyone’s favorite tax break without offsets would represent exactly the wrong direction for tax and fiscal policy, undermining much of the progress made so far,” the Committee for a Responsible Federal Budget said in a blog post yesterday.
In the past, Republicans have criticized the lack of rules to prevent undocumented immigrants from receiving the child tax credit as well as error rates in the earned income credit.
The Obama administration has opposed permanent extensions of business breaks.
Camp wouldn’t discuss details of the discussions among lawmakers and staff members. Camp, a Michigan Republican who unsuccessfully sought to advance a revision of the U.S. tax code this year, said he is trying to attach some permanent policies to the short-term extensions and that he’s willing to compromise to make that happen.
His alternate plan is a one-year retroactive extension of the lapsed tax breaks. That would set all of the breaks to expire in just a few weeks at the end of 2014 and require Congress to address the issue again next year.
Senate Democrats prefer an extension through 2015 as the fallback plan, preserving their priorities even after Republicans take control of the Senate next year.
The negotiators don’t have much time to act. Congress returns Dec. 1 to wrap up its post-election session, and House leaders want to finish the year’s work by Dec. 11.
IRS Commissioner John Koskinen has warned that waiting until December could cause delays of tax refunds next year.
That puts pressure on lawmakers to reach a deal or accept an alternate plan next week to give it enough time to work through the legislative process.
“There’s no specific time,” Camp said, “but it is looming out there.”
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