Seems Congress is about to engage in one of its periodic bipartisan rituals — a retroactive extension of targeted tax breaks, each of which is near and dear to the heart of at least one member and his/her influential constituents.
Near and dear to the hearts of many constituents is an extension of Emergency Unemployment Compensation. After months of blustering and filibustering, the Senate has passed a foreshortened EUC extension — only five months, back-dated to January 1.
The main reason it’s short is that Republicans insisted that the costs be offset. Now will they — and Democrats as well — apply the same principle to the so-called extenders?
Apparently not, unless something remarkable happens. The Senate Finance Committee has already approved an extension package. It will cost $85.3 billion over 11 years (2014-24), counting offsets worth about 1% of that. About 90% of the total will reportedly benefit businesses, especially large corporations.
The Republican House Ways and Means majority has gone further. Its initial package of bills would make some of the biggest corporate tax breaks permanent — and boost the biggest. Revenue losses over the first 11 years total about $310 billion. No offset.
What Are the Extenders?
The extenders are only a subset of exclusions, credits, deductions and the like in the federal tax code. What distinguishes them is that they expire every couple of years. At least, they have up until now.
The most familiar, I suppose, is the tax credit corporations can claim for research and experimentation (formerly research and development). It will cost $155.5 billion over the 11-year period, if increased and taken out of the extender category, as House Ways and Means Republicans intend.
This worthy investment in our private, for-profit sector can subsidize such socially beneficial activities as the development of new packaging for a fast food product, according to a Center for Tax Justice brief.
Less known, but very important to Kentucky Senator Mitch McConnell is the Equine Equity Act — not a civil rights law for horses, as the title suggests, but a pair of provisions that allow racehorse owners to write off a hefty portion of their costs.
NASCAR race track and restaurant owners get speedier write-offs than less advantaged businesses, as do businesses on Indian reservations, including those engaged in coal production.
Puerto Rican rum producers have a tax credit all their own. So do film and TV producers. Also investors in certain small business start-ups, who can sell their stock after five years without paying any capital gains tax.
And there are two highly-technical extenders that enable multinational corporations to defer federal taxes for as long as they choose. I’ll leave it to the Center for American Progress to explain.
Will merely note that they’ll cost about $8 billion a year, according to Americans for Tax Fairness and its coalition partners. They’re among the provisions House Ways and Means would make permanent.
Not all the tax breaks are for businesses, however.
Teachers, for example, may take an above-the-line deduction, i.e., subtract from their gross income, what they pay out of pocket for books and supplies they buy for classroom use — a sad commentary on the state of public education funding.
There’s also an above-the-line deduction that low and moderate-income taxpayers may take for higher education and certain related fees.
Homeowners can deduct what they pay not only for interest on their mortgage, but for the mortgage insurance lenders generally require.
Taxpayers can deduct what they’ve paid in state and local sales taxes instead of deducting their state income tax payments — a boon to filers in the nine states that have no or only a partial income tax and to state and local governments, which can charge higher sales taxes than what might otherwise be politically possible.
Not an exhaustive list, by any means. All told, 55 tax breaks expired at the end of last year. Congress will almost surely renew most, if not all — and on a bipartisan basis.
A Double Standard
Everyone from left to right believes the federal tax code is ripe for reform — one that would eliminate many of these “temporary” tax breaks and permanently incorporate the rest.
At the same time, every one of the breaks is in the tax code because some taxpayers with clout wanted it there. Talk about your job creators. Corporations have retained an “army” of at least 1,359 lobbyists to press for the extenders, Americans for Tax Justice reports.
Well, EUC benefits create and/or preserve jobs too. Failing to renew them will leave the labor market shy 240,000 jobs this year, according to White House economists.
Yet try as they might, leading Democrats, a not-so-well-paid army of advocates and jobless workers who aren’t getting paid at all can’t budge House Republicans, including the Ways and Means Committee majority, which has jurisdiction over EUC, as well as taxes.
A year-long EUC extension would have cost an estimated $25 billion — about 8% of the House Ways and Means extender package. And the committee still has a bunch of tax breaks to go.