December 22, 2014

Instead of Business as Usual, Tax Extenders Will Expire at End of the Year

Unlike the past few years, the recent budget agreement has smoothed the way for Congress to recess for its winter break well before Christmas. That has left some traditional end-of-year legislation out in the cold.

That is bad news for the unemployed, as emergency unemployment benefits are scheduled to expire. Yet there is also hopeful news for those who wish to bring some sanity to the tax code because the oft-extended package of miscellaneous tax breaks, collectively called the “tax extenders,” is also scheduled to expire.

The tax extenders are temporary provisions. Like other tax expenditures, they are disguised federal subsidies that encourage certain behaviors. Every year Congress has extended them for at least another year, allowing certain individuals and businesses to lower their tax bills. Extenders represent the ad hoc approach that has made the tax code a complex, inefficient mess of tax expenditures.

Senate Finance Committee Chair Max Baucus (D-Mont.) and House Ways and Means Committee Chair Dave Camp (R-Mich.) came out last week against approving the extenders for another year. Instead, they want a comprehensive overhaul of the tax code that would eliminate wasteful subsidies.

Denying a vote on the extenders is seen by many lobbyists and business groups as an effort by the two chairmen to get the business community more invested in fixing the entire code, rather than just focusing on the renewal of tax provisions that benefit their industries.

Rep. Patrick Tiberi (R-Ohio), chair of the Ways and Means subcommittee on taxes, has said “any time we do extenders, it takes the pressure off comprehensive tax reform, and it takes away from the debate of comprehensive tax reform.”

Lobbyists and Hill staffers say Baucus and Camp are showing that they have not given up on comprehensive tax reform and plan to continue focusing on it next year.

Both lawmakers want to complete a rewrite of the tax code by 2014, the last year they will be chairs of their powerful committees and able to wield the most influence over tax reform efforts.

According to an estimate by the Joint Committee on Taxation (JCT) and the Congressional Budget Office, this year 55 provisions slated to expire together would -- if renewed -- cost the government $54.2 billion in the coming year.

The provisions range from credits for film and television productions to credits for biofuel producers, to provisions that affect larger groups of businesses, such as the research and development tax credit. Other expiring provisions can affect large segments of the population, such as a deduction for state and local sales taxes and tax breaks for homeowners who have had some of their mortgage debt forgiven.

Unfortunately, at this time of the year the question lawmakers usually ask themselves is not why should they pass tax extenders and whether they are effective in accomplishing their goals, but how can they pass the extenders quickly and quietly.

If Congress did take the time to regularly scrutinize and examine them -- and most special tax provisions -- they would most likely find that most of them are inefficient, wasteful or simply giveaways to narrow special interests.

Hopefully, 2014 will bring change. Baucus and Camp have taken a good first step towards comprehensive tax reform by continuing their stand against approving the extenders. A good second step would be to insist that reauthorization of any tax provision be made only during a comprehensive rewrite of of the code.

While some tax expenditures may survive such a rewrite, many should not. Such a reform -- advocated by many economists and tax experts -- would eliminate wasteful subsidies, broaden the tax base and produce a simpler, more efficient system.