With barely two weeks remaining in the year, the Senate finally got around to passing the tax extenders bill. The bill extends the lives of some 55 tax breaks through the end of the year. Most of those tax provisions had expired at the end of 2013, but in what has now become a silly end of-the-year ritual, they have been retroactively given an additional year of life. The bill now goes to President Obama, who is expected to sign it into law. The cost of this bill is tabbed at $41.6 billion over 10 years. Some of the provisions are important to small business – for example, the tax credit for research and development expenditures, and bonus depreciation for equipment and other capital purchases. But the purpose of these provisions – to encourage investments that foster long-term growth and job creation – is largely defeated when Congress waits until year-end before passing a retroactive extension.
Uncertainty about tax breaks is counter-productive. Businesses can’t wait until year end to make purchasing decisions, and they often can’t afford to risk the possibility that lawmakers won’t reach a retroactive deal. But the tax extenders bill isn’t exactly clean. It isn’t limited just to valuable items like the research and development tax credit and expensing provisions that keep U.S. business competitive and create jobs. It also includes tax breaks for racehorses, NASCAR owners, Puerto Rican rum companies, and other controversial items bearing the fingerprints of powerful lobbyists and special interest groups, and reflecting the unsavory side of the tax legislative process.
This year it looked like a deal had been reached between Senate Majority Leader Harry Reid (D-NV) and Republican House Ways and Means Committee Chairman Dave Camp which would have extended most breaks for two years and made several of the business breaks permanent. But a preemptive veto threat from the President killed the deal. The President’s objection stemmed primarily from the fact that the deal did not make permanent the earned income and child tax credits that benefit low-income taxpayers – provisions which under current law do not expire until December 31, 2017. Making those provisions permanent would probably not have been controversial had the President not taken executive action on November 20 for sweeping immigration reform. That action opened up the very real possibility that billions of dollars of additional, unanticipated tax credits might have to be paid out to newly-protected illegals if the credits were made permanent.
So, what the taxpayers end up with is another unsatisfactory short-term fix, and we can look forward to the same show again next year at this time.
Jeff Lerner is a tax attorney who resides in Fort Worth, Texas. Over a 40 year career, he has provided legal representation to a diverse list of clients, including railroads, energy companies and Indian tribes. He was formerly Vice President-Taxes for the Burlington Northern Railroad Company (now BNSF).