Tax-Break Extension Plan in Congress Is Irresponsible, Lew Says

U.S. Treasury Secretary Jacob J. Lew called a potential agreement to revive and extend lapsed tax breaks “fiscally irresponsible,” casting uncertainty over year-end negotiations in Congress.

Lew was responding to talks between Republicans and Democrats that would make permanent a few of the tax breaks that expired at the end of 2013 and extend others through 2015. Lawmakers are discussing a package that could increase the U.S. budget deficit by more than $400 billion over a decade.

Lawmakers have been trying to reach a deal that includes some permanent extensions of breaks for businesses, such as the research tax credit, along with some for individuals, such as expansions of the child tax credit and earned income tax credit that are backed by the Obama administration.

The precise contours of a deal haven’t been set, and staff members from both parties are negotiating the deal.

“An extender package that makes permanent expiring business provisions without addressing tax credits for working families is the wrong approach, at the expense of middle-class families,” Lew said in a statement today. “Any deal on tax extenders must ensure that the economic benefits are broadly shared.”

A collapse of the bipartisan talks may send both parties to their fallback positions, with House Republicans urging an extension only through 2014 and Senate Democrats seeking an extension through 2015.

‘Good Faith’

“All parties are coming to the discussions in good faith,” Representative Dave Camp, chairman of the House Ways and Means Committee, said in a telephone interview today. “It remains to be seen whether something will come together, but I think it’s worth a try.”

Republicans and many Democrats want to make permanent the research tax credit. Other breaks being considered for permanent status include a provision letting small businesses write off more capital investments immediately, a state sales tax deduction and a tuition tax credit.

Democrats are focused on expansions of the child tax credit and earned income tax credit, which expire at the end of 2017, and the production tax credit for wind energy.

Earlier this year, the House passed an expansion and extension of the research credit that would cost the U.S. government $155.5 billion over a decade in forgone revenue. On that vote, 62 Democrats joined 212 Republicans to back the bill.

Families’ Breaks

Most of the tax breaks expired at the end of 2013, though the Democrats’ breaks for low-income and middle-income families don’t lapse until the end of 2017. They’re trying to use the negotiations to secure permanent extensions of those items.

The talks may fall apart because of divides over which policies deserve extensions and because the measure could add more than $400 billion to the deficit over the next decade.

In the past, Republicans have criticized the lack of rules to prevent undocumented immigrants from receiving the child tax credit as well as the error rates in the earned income credit.

The Obama administration has opposed permanent extensions of business breaks.

Camp wouldn’t discuss the details being discussed by lawmakers and staff members. Camp, a Michigan Republican who unsuccessfully sought to advance a revision of the U.S. tax code this year, said he is trying to attach some permanent policies to the short-term extensions and that he’s willing to compromise to get that done.

One-Year Extension

His fallback plan is a one-year retroactive extension of the lapsed tax breaks. That would set all of the breaks to expire in just a few weeks at the end of 2014 and require Congress to address the issue again next year.

Senate Democrats prefer an extension through 2015 as the fallback plan, preserving their priorities even after Republicans take control of the Senate next year.

The negotiators don’t have much time to act. Congress returns Dec. 1 to wrap up its post-election session, and House leaders want to finish the year’s work by Dec. 11.

That puts pressure on lawmakers to reach a deal or accept an alternate plan in the next two weeks.

“There’s no specific time,” Camp said, “but it is looming out there.”

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