U.S. lawmakers, about to pass a short-term deal to extend dozens of targeted tax breaks, know what they're doing is bad policy. And they're doing it anyway.
Dozens of tax breaks expired on Dec. 31, 2013, and Congress spent the year fighting over them. Now, with just four weeks left in the year, the House of Representatives plans today to punt the whole debate and slap on a new expiration date: Dec. 31, 2014.
Policy experts say tax cuts like these should be predictable and stable. This plan is far from that, because it means that business executives and individuals on New Year's Day will have no idea if they can take the breaks again in 2015.
"We're going to go back to the uncertainty that plagues the code, the lack of stability that plagues investment," said Representative Richard Neal, a Massachusetts Democrat. "We have no choice, because there was not the institutional will to do something bigger and longer."
The $45 billion plan set to be passed in the waning days of the session would give windfall benefits to companies for actions they took during the first 11 months of 2014. It would provide businesses with almost no time to take advantage of the breaks before they lapse again.
U.S. lawmakers, who earlier this year flirted with the most significant revamp of the tax code since 1986 before abandoning the effort, said they don't like what they're doing. They recognize that the short-term deal will force Congress and taxpayers back into the same cycle in January.
GE, Wal-Mart
The tax breaks in question include benefits for big corporations such as General Electric Co. and Wal-Mart Stores Inc., with incentives for hiring workers from disadvantaged groups and for installing wind turbines.
Individual taxpayers have a few items at stake, too, including the ability to deduct sales taxes, which benefits residents of states such as Washington and Nevada that don't have income taxes. People who have debt forgiven in short sales of homes would be able to exclude that from their income for 2014 if the bill passes.
The breaks, known on Capitol Hill as tax extenders, have survived for years as a package. They typically are tacked onto more important legislation and benefit from lawmakers' willingness to vote for a few ideas they oppose while their colleagues reciprocate.
Grover Norquist
Supporters of the House bill include Americans for Tax Reform, the group led by anti-tax advocate Grover Norquist, and the National Association of Manufacturers. Opponents include Koch Industries Inc., the conglomerate that is against the production tax credit for wind energy.
A few twists and turns are possible before the House bill, H.R. 5771, becomes law. Obama administration officials have expressed openness to a short-term deal without endorsing the measure.
Senate Democrats may try to add an extra year of extensions or revive some jettisoned by the House, such as a tax credit that pays for the health care of laid-off workers or a break for plug-in electric motorcycles.
"Game on," Senate Finance Chairman Ron Wyden told reporters yesterday. Failed Effort
How Congress got here is no game.
The tax extenders proposal followed a four-year effort by Dave Camp, chairman of the House Ways and Means Committee. Camp, a Michigan Republican, sought to revamp the tax code by lowering rates and eliminating breaks.
When that effort fizzled, Republicans tried to lock in permanent extensions of a few of the lapsed breaks, including the research and development tax credit and more generous capital equipment write-offs for small businesses.
Camp and Senate Majority Leader Harry Reid almost had a deal last week. It would have made those policies and others permanent while extending the rest of the breaks through 2015.
That plan, too, fell apart, victim to a fight among Democrats over the party's priorities. President Barack Obama threatened to veto the emerging deal because it didn't extend expansions of the child tax credit and earned-income credit that lapse at the end of 2017.
