Letting Credits Expire Part of Strategy for Code Revision: TaxesMarc Heller
Odds are increasing that Congress will let dozens of tax breaks expire at the end of the year as part of a move to revise the U.S. tax code, lobbyists and analysts following the issue say.
Allowing the so-called tax extenders to die, at least temporarily, would allow lawmakers to study which should be continued or permanently ended, Bloomberg BNA reported.
Items that appear especially vulnerable include the production tax credit for wind energy and credits for efficient home appliances. Others, such as the research and development credit, are broadly popular and likely to survive in the long run, said the lobbyists and analysts.
The expirations of all the credits may lapse well into 2014 while lawmakers map a path for the comprehensive tax revision promoted by Representative Dave Camp, the Michigan Republican who heads the House Ways and Means Committee, and Senator Max Baucus, a Montana Democrat and chairman of his chamber’s Finance Committee. As an indication of this, lawmakers and congressional staff members on these two tax-writing panels have said they are paying more attention to broader tax changes than to the provisions expiring in less than two months.
“At least for right now, we are much more focused on tax reform and really not talking about extenders at all at this point,” Shawn Novak, senior accountant and tax adviser for the Senate Finance Committee’s Republican staff, said at the American Institute of CPAs National Tax Conference in Washington on Nov. 4.
The National Association of Manufacturers and other business groups have urged Congress to end the practice of annual tax-break extensions even as they support provisions such as the research and development credit and the look-through rule for foreign subsidiaries of U.S. companies known as controlled foreign corporations. The look-through rule allows dividends, interest and rent to be transferred between CFCs without triggering a U.S. tax obligation.
“This is not the way to do business,” said a lobbyist for one business group critical of Congress’s approach who asked not to be identified when commenting on the process that is unfolding. “It’s not effective for business planning.”
Businesses are left guessing whether they can count on their credits for tax year 2014, Jeff Porter, chairman of the AICPA Tax Executive Committee, said at this week’s conference.
“Not knowing what kind of depreciation structure we are going to have is going to have an impact and potentially slow down our clients’ planning process,” Porter said.
Each provision that may expire has their own political constituency and most aren’t especially costly, compared with other, more far-reaching tax breaks.
The research and development credit is the most expensive, costing $14.3 billion in forgone taxes over a decade, the Congressional Research Service said in a June report. An above-the-line deduction for college tuition and related expenses will cost $1.7 billion over the same period, and the credit for energy-efficient appliances $700 million, the CRS said.
By contrast, the tax deduction for home mortgage interest takes $379 billion out of government revenue in half that time, the congressional Joint Committee on Taxation said in its February estimates on tax expenditures.
Advocates for revamping tax policy call the provisions a good example of how complicated and outdated the code has become since the last major changes in 1986. The credit for energy-efficient appliances includes efficiency standards so common and easily attained, for instance, that the break doesn’t change consumers’ purchasing decisions, the American Council for an Energy-Efficient Economy said.
A sharp debate awaits over the wind power credit, lobbyists on both sides of that issue said. Congress changed the credit as part of the last extenders package to allow the break for facilities that begin construction this year, even if they aren’t yet brought online. That provision, which applies to other alternative energy sources as well, would cost the government $12.2 billion over a decade, CRS said.
Democratic Senators Debbie Stabenow of Michigan and Ron Wyden of Oregon, appearing at an American Wind Energy Association forum on Nov. 4 in East Lansing, Michigan, pledged they would seek certainty and fairness for the industry wind power as part of tax code revisions.
“If you want an ‘all-of-the-above’ energy policy, you have to have a competitive energy landscape,” Wyden said. “What we’ve got to do is start that move towards parity.”
The fight over wind energy credits, enacted in 1992, isn’t new. “Wind has had a big target on it for a long time,” said Patricia Wolff, a tax lobbyist for the American Farm Bureau Federation, which supports it as an extra source of income for farmers who lease their land for windmills.
Several other energy-related provisions hang in the balance, as well. The credit for efficient home appliances appears likely to end because industry isn’t pushing for it, Steve Nadel, executive director of ACEEE, said in an interview.