Lapsed Tax Breaks Get New Life as Panel Votes to Extend
U.S. senators voted to revive more than 50 lapsed tax breaks, working across party lines to back a measure that benefits wind energy, multinational corporations and motor sports tracks.
Even as they lamented their inability to set permanent tax policy, the Senate Finance Committee yesterday agreed to extend through 2015 the more than $86 billion in tax breaks.
Among the package’s beneficiaries are General Electric Co. (GE), which would be able to continue deferring taxes on profits from its overseas financing operations, and AT&T Inc. (T), which issued a statement saying the vote to extend bonus depreciation gives the company “confidence” to begin deploying fiber to more U.S. cities.
“There’s an advocate for almost every one of those provisions,” said Senator Mike Crapo, an Idaho Republican. “Ultimately, you just see the politics of a particular interest having sufficient advocacy to be able to get their provisions included.”
U.S. lawmakers are focusing on the short-term extensions as prospects for a major revision of the U.S. tax code dim. Democrat Ron Wyden of Oregon, the new chairman of the Senate Finance Committee, created the package that was approved yesterday -- and said he won’t do it again.
“This will be the last tax extenders bill the committee takes up as long as I am the chairman,” said Wyden, who took over the panel earlier this year after Max Baucus, a Montana Democrat, gave up his Senate seat to become U.S. ambassador to China.
Most of the tax breaks expired after Dec. 31, 2013, though some lapse at the end of this year.
Democratic leaders haven’t scheduled the measure for consideration by the full Senate. In the Republican-led House of Representatives, lawmakers are focused on making some provisions permanent and repealing others.
Senators said they regretted the need to routinely extend tax breaks, because of the uncertainty it creates for businesses and individuals. The research and development credit, which benefits companies such as Intel Corp. (INTC), has been expiring periodically since it became law in 1981.
Other breaks extended as part of the proposal include the exclusion of mortgage debt canceled in a short sale, faster writeoffs for some restaurant construction and incentives for building energy-efficient homes.
“Everybody that you talk to in any business environment -- and I mean across the entire economy, not only in my state but the country -- is fit to be tied about the lack of certainty and predictability,” said Senator Pat Roberts, a Kansas Republican. “You should be going to comprehensive tax reform, but that’s a tremendous challenge.”
Lawmakers have been unable to find a way out of the pattern of lapses and temporary revivals. They typically reach compromise by agreeing to extend almost all the breaks that expired, even some they don’t favor. That’s what happened yesterday in the committee’s voice vote.
“The challenge on taxes is to always find the common ground where you can move ahead,” Wyden told reporters after the vote. “What you saw today was the product of a bipartisan negotiation.”
Continuing the tax breaks permanently would require accounting for 10 years of forgone revenue. It also would end the lobbying and fundraising cycle that accompanies the lapsed provisions.
Lawmakers support provisions that are particularly important in their home states and trade support for other members’ favored breaks.
These include a mass-transit commuting benefit that aids New York and New Jersey residents and the ability to deduct state sales taxes. The deduction provision is important in states such as Washington and Florida that lack income taxes.
Those forces overcome the interest groups arguing against parts of the package.
Among them are the U.S. Public Interest Research Group’s opposition to breaks for multinational corporations, the Committee for a Responsible Federal Budget’s call for a bill that wouldn’t increase budget deficits and the small-government Heritage Foundation’s support for abolishing renewable-energy breaks.
Wyden offered a proposal yesterday with some breaks he had left out earlier, including the production credit for wind that benefits companies such as Vestas Wind Systems A/S (VWS) and a break for film and television production.
The TV production provision, which allows companies to immediately write off expenses, is being expanded to include stage productions. It is backed by Senator Charles Schumer of New York, home to Broadway’s live theaters.
One item that wasn’t included in either version is a tax credit for making energy-efficient appliances, a break that benefited GE and Whirlpool Corp. (WHR)
Senator Debbie Stabenow, a Democrat from Michigan, the home state of Whirlpool, said industry officials supported the expiration of the break and prefer to address the issue as part of broader tax-code changes.
Wyden and the committee also expanded a tax credit for hiring workers from disadvantaged groups to provide an incentive for hiring long-term unemployed workers.
Committee members adopted several amendments. One expands the research credit to make it more accessible for startup businesses that don’t earn profits, by letting them count the credit against payroll taxes.
The panel voted to allow people who use bike-sharing services to qualify for the $20-a-month exclusion from income to cover their costs, a break that’s currently available only for bike owners.
Democrats who control the committee also voted to prevent Republicans from considering an amendment to delay the excise tax on medical devices for two years. Wyden, who said he shares Republicans’ concerns about the tax, said it was outside the measure’s scope.
Companies such as Medtronic Inc. oppose the device tax, passed as part of the 2010 health-care law.
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