Permanent Extenders Talks Yield Fruitful Results in 2015

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By Aaron E. Lorenzo

Dec. 17 — What a difference a year makes.

An agreement to permanently renew a number of long-popular business and household tax breaks crystallized this year, an about-face from last year when similar talks crumbled after Democrats walked away.

“It just seems like everyone is tired of business as usual in Congress,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) said after the $622 billion tax legislation passed the House 318-109 on Dec. 17.

In addition to exhaustion with the status quo, fresh leadership regimes in Congress, a new legislative process and more consolidated Republican power led to the turnaround from last year, according to numerous sources close to the talks. They also pointed to the presence of parties who stayed at the negotiating table this time around compared with a year ago, when officials from President Barack Obama's administration and some key Senate Democrats were barely present at best.

“They're tired this year, tired of the annual crisis on how we pay our local doctors in Medicare, tired of these temporary tax breaks and all the wasted time and effort and uncertainty and pain that it brings,” Brady told Bloomberg BNA.

Party solidarity also played a role for Republicans, said Rep. Charles Boustany Jr. (R-La.), chairman of the Ways and Means tax policy subcommittee. House and Senate Republicans presented a united front in tense negotiations to make permanent 19 of the 52 tax provisions that lapsed at the start of this year, along with three household tax credits that face expiration in 2017.

“I think we had more leverage this year,” Boustany told Bloomberg BNA, “and we had a year more to normalize these ideas about setting the stage for tax reform, creating an atmosphere of more certainty for our families and small businesses, and I think all of that helped.”

The proposal includes a number of employee-benefits related provisions.

Some of these have been included in previous tax extenders bills, such as restoring parity between tax breaks for parking and transit benefits and extending rules allowing tax-free distributions from individual retirement plans for charitable purposes. These would be extended permanently.

But lawmakers also included language from legislation to make technical changes in the tax code on church plans, the Church Plan Clarification Act of 2015 (S. 2308). The language would tackle five distinct issues related to such plans, including rules on controlled groups, grandfathered defined benefit plans, automatic enrollment, transfers between 403(b) and 401(a) plans, and 81-100 trusts, or trusts established by Revenue Ruling 81-100.

In addition, the legislation would permit rollovers from other retirement plans into savings incentive match plan for employees (SIMPLE) IRAs.

Building Blocks

Much of the policy in the package has long enjoyed bipartisan, bicameral support, so the building blocks were in place, according to former Rep. Dave Camp (R-Mich.), who nearly cinched the deal last year as Ways and Means chairman before retiring from Congress.

Now a senior policy adviser at PricewaterhouseCoopers LLP, Camp came close to an agreement with Senate Minority Leader Harry Reid (D-Nev.) after Democrats lost their majority in last November's elections.

“It's not all brand new,” Camp told Bloomberg BNA. “At times, it's a process that rewards the persistent.”

In addition to the foundation, he credited Brady and House Speaker Paul D. Ryan (R-Wis.), both of whom Camp said played key roles in developing his tax overhaul legislation before House Republicans pivoted to permanent extenders late last spring. White House officials were also much more engaged this year, Camp said.

In contrast, Obama's emissaries by and large didn't participate last year, multiple tax lobbyists said.

Led by the chairman of the president's Council of Economic Advisers, Jason Furman, they approached Ways and Means staff late last summer with a conditional demand—that of permanency for enhanced versions of the child tax credit, American Opportunity Tax Credit and Earned Income Tax Credit—before going any further in the talks to make permanent business provisions such as the research and development tax credit or bigger expensing allowances under Section 179 of the U.S. tax code.

That was a non-starter, said a lobbyist who requested anonymity to speak freely about the process.

The discussions continued anyway, but when administration officials balked along with Senate Finance Committee ranking member Ron Wyden (D-Ore.), who chaired the panel at the time, the deal dissolved late last November.

A Big Deal

White House participation was far different this year.

“That is a big deal,” said another lobbyist who also spoke under condition of anonymity, “a substantial difference.”

As a result, Obama and congressional Democrats can claim credit for permanently continuing the trio of household tax credits that were expanded as part of the president's economic stimulus package in 2009. White House press secretary Josh Earnest labeled it a legacy achievement for Obama.

In addition, Republicans in Congress can claim a victory on reducing fraud tied to the three credits through provisions they say improve the programs' integrity.

“The White House allowed us to work our will, to some extent,” Boustany said.

Timing also came into play.

When Camp and Reid broke up their talks, lawmakers fell back on a one-year renewal for the tax extenders package, good for last year only. That forced the talks to restart again this year, but Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said he wouldn't agree to another one-year deal.

A two-year fallback for this year and next would take away Obama's legacy opportunities on the three individual tax credits, according to Hatch, who dealt in part with White House Chief of Staff Denis McDonough during this year's discussions.

“I think it was one of the things that kept them at the table,” Hatch told Bloomberg BNA.

The Senate is expected to vote on the tax legislation as part of a spending bill on Dec. 18. Looking beyond last year and this year, Hatch, Camp and Brady all said the permanency package paves the way to revamping the tax code down the road.

“My thinking is that today the tax code is a little less broken than it was yesterday,” Brady said.

To contact the reporter on this story: Aaron E. Lorenzo in Washington at aaron@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com