By Marc Heller
Dec. 16 — If
multi-billion dollar tax benefits for research and business
expensing are the bones of the tax deal Congress is poised to
enact, smaller tax breaks for teachers, farmers and corner stores
may be the joints that keep it together.
The so-called tax extenders bill lawmakers are likely to pass on Dec. 17 is full of changes aimed at specific industries or groups of taxpayers, some of which have sought action for years.
Teachers will see a bigger and permanent deduction
for the school supplies they buy. College students will be able to
use tax-preferred savings accounts to buy computers. Restaurants
and retailers will be able to shorten the depreciation period for
certain improvements, making them more financially
List Goes On and On
The list goes on and on, reflecting lawmakers'
efforts to tune the tax code to industries in their states or
congressional districts, or to appeal to specific causes such as
higher education or help for low-income families. Many cost in the
millions—not billions—of dollars in forgone revenue to the
government, a fraction of the fiscal footprint of items such as the
research credit, which the Joint Committee on Taxation estimated at
$113 billion from 2016 to 2025 (JCX-143-15).
“I think for each one of those constituent groups,
of course, those are important. We've already received phone calls
from a lot of those groups saying ‘thank you for your work in that
area.' ” said Rep. Dave Reichert (R-Wash.), a member of the House
Ways and Means Committee. “Even with a teacher who's spending $500
a year not knowing if that deduction is available, it creates a
world of uncertainty.”
The House is set to take up the measure Dec. 17,
with the Senate to closely follow. Although many Democrats may vote
for it, others—such as Rep. Sander M. Levin (D-Mich.), ranking
member on the House Ways and Means Committee—will be “no”
Among other objections, Levin said in a letter to
fellow Democrats Dec. 16, the measure doesn't index the Child Tax
Credit for inflation but it does index some business-related
provisions. “While I support strong tax policy that provides
certainty to individuals and American businesses, I cannot support
this legislation as it currently stands,” he said.
The deduction for school supplies would be capped at
$250 and would be newly indexed to inflation beginning in 2016.
Lawmakers also made the deduction available for professional
development expenses, bringing the deduction's cost to $2.9 billion
from 2016 to 2025.
Other provisions include:
• Permanent extension of the
15-year cost recovery period for qualified leasehold improvements,
restaurant and retail building improvements. Supporters,
including the National Restaurant Association, said the competitive
business requires improvements so often that a longer cost recovery
period doesn't make sense.
• Permanent parity for mass
transit in commuting benefit. This provision, championed by
Sen. Charles E. Schumer (D-N.Y.), permanently puts mass transit on
equal footing with parking for the commuter tax benefit in Section
132 of the tax code, at $175 instead of $100. Mass transit parity
was extended temporarily in the last tax extender bill, in late
2014. However, the measure doesn't include a provision from the
Senate Finance Committee that would have allowed an exclusion for
employers' reimbursements of bikeshare program expenses.
• Exceptions for Foreign
Investment in Real Property Tax Act. Certain foreign pension
funds would be exempt from FIRPTA withholding taxes, a move the
real estate industry and some pension funds had sought, and which
the Obama administration supported as a way to boost investment in
U.S. public works projects, for instance. In addition, regulated
investment companies would permanently be considered qualified
investment entities not subject to FIRPTA tax.
• Crops newly eligible for
bonus depreciation. Growers of nuts, fruits and vines would
be eligible for bonus depreciation. This includes blueberries and
other bush crops that were overlooked in an earlier bonus
depreciation measure passed by the House. Bonus depreciation,
broadly, would be phased out by 2019, although some Republican
lawmakers told Bloomberg BNA they will continue to push for
permanency. The American Farm Bureau Federation pressed lawmakers
to close what may have been an oversight on bush crops, primarily
• Enhanced college savings
account benefit. College savings accounts in tax code
Section 529 could be used to buy computer and technology equipment,
which was allowed as recently as 2010. The legislation also
clarifies that a distribution from an account is considered a
withdrawal from only one account, in the event a taxpayer has more
than one Section 529 account. Refunds of tuition paid with funds
from such an account would be considered a qualified expense as
long as re-contributed to a Section 529 account within 60
• Benefit for charitable
contributions to agricultural research. The American Farm
Bureau Federation lobbied for this provision, which dictates that
contributions to agricultural research organizations for research
purposes are subject to higher individual limits, generally 50
percent of the taxpayer's contribution base. The enhanced benefit
applies as long as the money is used for research within five
• Parity for liquefied
petroleum gas and natural gas in federal excise tax credit. The federal excise tax credit would be adjusted to measure
petroleum gas and natural gas in energy equivalents compared to
diesel, rather than gallons. Advocates for the alternative fuels
said that on an energy equivalent basis, those fuels have been at a
disadvantage to diesel.
• Reduced federal excise tax
on hard cider. The legislation would allow stronger
alcoholic cider, up to 8.5 percent alcohol, to be treated on an
equal footing with beer, rather than being taxed comparably with
wine. Schumer pushed for this provision. However, lawmakers didn't
include a proposal from Sen. Ron Wyden (D-Ore.) to revamp excise
taxes on beer, including the craft brewers dominant in his
• Deduction for contribution
of real property for conservation. The deduction for
contribution of real property for conservation would be made
permanent, as would an enhanced deduction for certain corporate
farmers. For the first time, Alaska Native Corporations would
receive deductions up to 100 percent of taxable income for
charitable contributions of conservation easements. The measure
would treat ANCs similar to farmers and ranchers.
• Enhanced Work Opportunity
Tax Credit. The measure extends the WOTC through 2019—one of
a handful of provisions given longer but temporary extensions. The
benefit would be available to the long-term unemployed— 27 weeks or
longer—and would climb to 40 percent of the first $6,000 of wages
for those individuals.
• Credit for electric
motorcycles. A favorite of Wyden, this credit that expired
at the end of 2013 would be given a second chance. The 10 percent
credit would be capped at $2,500. It was conspicuously left out of
a tax extenders measure at the end of 2013 by then-Ways and Means
Committee Chairman Dave Camp (R-Mich.), giving it a one-year hiatus
from the tax code.
• Taxes for timber
gains. The measure sets the income tax rate for gains from
timber at 23.8 percent for 2016, meaning corporations will pay the
same, relatively lower capital gains rate as passthrough entities.
Companies such as Deltic Timber Corp. of El Dorado, Ark., have been
pushing for that change.
To contact the reporter on this story: Marc Heller
in Washington at firstname.lastname@example.org
To contact the editor responsible for this story:
Brett Ferguson at email@example.com
For More Information
Texts of the tax extenders bill,Protecting Americans
From Tax Hikes Act, a summary of the extenders bill, and Joint
Committee on Taxation report (JCX-143-15) are in Taxcore.