Congress may have to resurrect some tax credits in order to kill them.
That’s one possible outcome of what has become an annual debate on a series of tax breaks for everyone from big companies with research arms like Intel Corp. (INTC) and Amgen Inc. (AMGN) to farmers and teachers -- breaks lawmakers typically extend for short periods with a promise of a more comprehensive review to follow.
Called “extenders” by lobbyists and lawmakers, the tax provisions expire again in January 2014, the deadline Congress set when it renewed them as part of the January 2013 deal to avert the fiscal cliff, Bloomberg BNA reported.
Trouble is, the package of tax breaks is generally popular with businesses, individuals and politicians -- so ending them abruptly without any promise of a cut in tax rates or changes through a tax-code revision probably would result in an uproar.
For lawmakers, that means renewing the breaks temporarily and then going after them in broader tax talks next year, with an eye toward scrapping some.
“It needs to be handled in a larger tax reform,” Representative Devin Nunes, a California Republican on the House Ways and Means Committee, told Bloomberg BNA. “That would be my preference but at this stage of the game anything’s possible.”
The congressional tax-writing committees have soured toward temporary extensions of tax credits.
Leaders of the Senate Finance Committee and the House Ways and Means Committee -- Senator Max Baucus, a Montana Democrat, and Representative Dave Camp, a Michigan Republican -- are focused on using one bill to end temporary extensions, which create uncertainty for those affected, even if the breaks go away for a period of time in the process, aides said.
Both chairmen say their reviews of the tax code will cover all tax credits and deductions, with an eye toward consolidation and possibly shedding those that fail to meet their original purpose. In addition, lawmakers say eliminating tax credits will help Congress reduce top corporate and individual tax rates.
There’s a chance lawmakers will address these extenders during wider budget and deficit talks this year, though Sander Levin, the ranking Democrat on the Ways and Means Committee, told reporters last week that the top priority is addressing the automatic spending cuts known as sequestration.
The provisions expiring in 2013 account for most of the $451 billion cost of extending all tax provisions expiring between 2013 and 2023, the Congressional Research Service said in a June 27 report on tax extenders.
The immediate challenge for tax extenders is that Congress doesn’t appear to have legislation at hand to which they can be attached, Nunes said.
Lobbyists following the issue said they expect some legislative measure that would extend the tax provisions to emerge in the weeks ahead, perhaps applying retroactively if it waits until early 2014.
Retroactive renewal for some of the provisions is nothing new, said Mary Kusler, director of government relations for the National Education Association, which is pushing the tax credit teachers receive for the school supplies they buy on their own.
“I’d like to see it in time,” she said. “There is certainly a lot of discussion that will happen in the next 60 days.”
The credit helps teachers offset some of the $1.6 billion they spend nationally on school supplies, Kusler said.
Other expiring provisions include the tax credit for research and experimentation, used by Intel, Amgen and other big companies; bonus depreciation; the credit for energy efficient appliances, backed by Whirlpool Corp. (WHR) and General Electric Co. (GE); incentives for alternative fuel; and the construction date to receive the production tax credit or investment tax credit for alternative energy, including wind companies.
Congress added a measure regarding the construction date when lawmakers last extended the provisions, allowing companies to qualify as long as they begin construction before the end of 2013 -- even if a project does not become operational until 2015, for instance.
Anticipating the possible expiration of the production tax credit provision, managers of some projects may rush to begin work before the end of the year, said Jed Roher, a tax lawyer with Godfrey & Kahn S.C. in Milwaukee, who advises clients with qualifying projects.
Roher told Bloomberg BNA he has advised clients to perform any work that could qualify as starting construction, which might be as simple as preparing construction materials.
All of the tax provisions have constituencies ready to defend them. The loss of bonus depreciation, for instance, would cost the telecommunications and utility industries $100 billion in additional tax payments, Moody’s Investors Service said in a September report.
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