Tax Extender Deal Trips Over Cost, Low-Income Tax Credits

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Dec. 1 — Congressional negotiations over several dozen expired tax deductions, credits and other provisions remain stuck on Democratic demands to boost tax credits for low-income households and on the potential cost of the package, lawmakers and congressional aides said.

After describing in detail the possible contours of an agreement to extend tax provisions Nov. 30, Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) stepped back Dec. 1, telling reporters he wouldn't comment on the items being negotiated. Hatch said he continues to believe leaders can strike a deal that mixes short-term extension for some provisions with permanent status for others.

An aide to a House member involved in negotiations told reporters that hope for an agreement on the so-called tax extenders appeared to wane in recent days, after negotiators seemed to have settled “90 percent” of the issues, leaving a handful of small sticking points. By Dec. 1, those small points—including indexing certain family-oriented tax credits for inflation—had grown more important, said the aide, who requested anonymity in order to speak more freely about ongoing talks.

Indexing is a key issue for Senate Democrats, Senate Minority Leader Harry Reid (D-Nev.) said at a Dec. 1 news conference. If Democrats can secure that, he said, they would be willing to bend on other issues, including delaying the “Cadillac tax” levied against high-cost health insurance plans under the Affordable Care Act.

Sen. John Thune (R-S.D.), a member of the Finance Committee, told reporters he thinks a Cadillac tax provision isn't likely to appear because it is outside the scope of tax extenders.

With the divide, negotiations seem to have stalled, the House aide said.

Brady: Keep Going

Republicans on the House Ways and Means Committee aren't ready to give up on a bigger deal, committee Chairman Kevin Brady (R-Texas) told reporters Dec. 1.

“As long as the parties are at the table and there's an opportunity for a pro-growth, permanent package, we will stay here. When that's no longer the case, we'll pivot,” Brady said.

Brady declined to speculate on a cost that could prove too high.

“It's honest scorekeeping, in my view, to take temporary provisions that truly are permanent and make them permanent,” he said.

Lawmakers and aides said the overall look of a potential deal, and the obstacles to achieving one, remain as they have for months. Republicans and Democrats each have lists of tax provisions they would like to make permanent, and negotiators are trying to cobble together a final list that both sides can accept, along with a few that might be kept temporary but be extended longer than the others.

Research Credit

The credit for research and experimentation remains at the forefront. Republicans have made permanence a top priority. Many Democrats agree but want to make up the lost tax revenue, which Republicans oppose.

After a permanent research credit seemed likely, Democrats complained anew about doing so without budget offsets. The so-called R&D credit is one of the bigger items in the total package, which Hatch told reporters Nov. 30 would cost between $500 billion and $1 trillion in forgone tax revenue (230 DTR G-5, 12/1/15).

Hatch declined to say how soon he thinks an extenders deal might emerge and suggested the next move isn't his. Others involved in the talks include Republican and Democratic leaders of the tax-writing committees, as well as House and Senate leadership.

The Obama administration is a key player, guiding Democrats on which issues might put President Barack Obama's signature in doubt. The White House has said an enhanced Earned Income Tax Credit, for instance, is key to its support.

“My part's pretty well done,” Hatch said. He said he wants to keep any extenders package as simple as possible to ease passage.

Sticker Shock

Lists of possible items of agreement have been circulating among lobbyists for days, giving interest groups and rank-and-file lawmakers time to weigh in on various provisions.

The main question in pursuing a deal is how expensive an accord Democrats are willing to accept, said Thune, who isn't a party to the negotiations. “The question will become whether the price is too high.”

Thune told reporters he still thinks a deal will emerge that does more than rubber stamp tax policy for a year or two.
“If the wheels come off of that effort, then I think you end up with a one-year, hopefully at least two-year extension,” Thune said. “I think it'd be terrible to do another one-year extension through this year retroactively, that just makes no sense.”

The Democrats' position on the cost of tax extenders, held by the Obama administration as well as lawmakers, ran into criticism Dec. 1 from Rep. Pat Tiberi (R-Ohio), a senior member of the Ways and Means Committee.

“A lot of these things have been extended over and over and over many times, retroactively,” Tiberi told reporters. “In my opinion, some people aren't sincere when they bring up the cost issue with respect to taxes.”

Any tax extender deal would likely ride on legislation keeping the government running into 2016. Timing remains tight if Congress abides by a self-imposed deadline of Dec. 18 to finish business for the year. Ways and Means Republicans had set a deadline of Dec. 7 to strike an extenders agreement, the House aide said.

Tax Credits, Tax Preparers

If an extenders measure extends or makes permanent tax credits such as the EITC and the Child Tax Credit, Republican lawmakers say they aim to include provisions to prevent fraudulent claims.

Lawmakers haven't offered details, however, and some Republican senators have struggled with the idea of giving the Internal Revenue Service more authority over tax preparers, an approach supported by Democrats and recommended by the Government Accountability Office.

With that issue potentially gaining more attention, Sen. Benjamin L. Cardin (D-Md.) and Rep. Xavier Becerra (D-Calif.) introduced legislation Dec. 1 that would give the Treasury Department and the IRS more regulation of tax preparers and would boost penalties for tax preparers who submit fraudulent returns, which sometimes are altered after a taxpayer completes and signs them.

The Taxpayer Rights Act (S. 2333 and H.R. 4128) would increase the minimum penalty from $50 to $1,000 for not providing the taxpayer with a copy of his final return, not signing the return or not providing an identification number, according to a summary from Becerra's office. The $25,000 annual cap on penalties for these violations would be eliminated.

Cardin said Dec. 1 that he believes enough bipartisan support exists to give the IRS authority over tax preparers, although the Finance Committee scrapped a markup in September. He said he hopes elements of his legislation can work into a tax extenders deal that boosts the EITC.

“We want to make sure it is effective. There are concerns about compliance and mistakes,” Cardin told reporters. “I think it all sort of plays together. I think it balances out some of the issues that other members have with the EITC.”

To contact the reporter on this story: Marc Heller in Washington at mheller@bna.com
To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com