December 8, 2015
U.S.

Chance for a year-end tax deal is fading

By Richard Rubin and Siobhan Hughes | The Wall Street Journal | Dec 7, 2015 | wsj.com

The chances of a big year-end tax deal are fading as lawmakers struggled to reach agreement on what to do about dozens of lapsed and expiring tax breaks.

Republican and Democratic negotiators have been working for weeks to reach a deal that would let each side turn some of its favored temporary breaks into permanent policy, including the research and development tax credit and expanded tax credits for low-income and middle-income families.

“I would never say it’s too late, but we’re running out of time,” Sen. John Cornyn (R., Texas) said on Monday. The talks about a bigger deal haven’t ended, Mr. Cornyn said. But odds are increasing that Congress will turn to its fallback plan – a proposal that would revive breaks that lapsed at the end of 2014 through the end of 2016.

Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said senators at least want to avoid replicating last year’s effort, when they passed a bill in mid-December that lasted only through Dec. 31.

“It’s a very fluid situation. We spent the whole weekend, essentially, discussing this issue,” Mr. Wyden said. “This debate has a variety of movable parts.”

One option is for the House of Representatives to pass the fallback plan soon while negotiators continue to discuss the bigger deal.

The breaks in play include bonus depreciation, the ability to deduct state sales taxes, faster writeoffs for small businesses and the production tax credit for wind energy. Those breaks, known as the “tax extenders,” routinely lapse and get revived retroactively, sapped of nearly all incentive effect. That pattern frustrates taxpayers and members of Congress, who vow never to let it happen again and then do so.

The breaks for low-income families – a priority for the Obama administration – don’t expire until the end of 2017. Lawmakers had also been talking about using the bill to delay Obamacare’s medical device tax and so-called “Cadillac tax” on high-cost employer-sponsored health insurance plans, but making major changes to Obamacare is always politically fraught for both parties.

The proposed package was getting bigger, too, raising concerns among lawmakers about the merits of adding hundreds of billions of dollars to the budget deficit. House Minority Leader Nancy Pelosi of California told fellow Democrats on Monday that there is “very little support” for the tax package as now written, in part because Republicans rejected indexing the $1,000 child tax credit for inflation.

“We recognize the clock is ticking,” said Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee. “I’m still hopeful we can have a pro-growth package of permanency, and those negotiations are still ongoing.”