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Dec. 18 — Call them the ex-extenders.
Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said he's ready to dump the term “tax extenders” for the package of credits and deductions Congress passed Dec. 18—an indication, he said, of the measure's broader reach and potential to end the rubber-stamp approach lawmakers have taken to temporary tax provisions in recent years.
Instead, Hatch told reporters Dec. 17, the provisions Congress passed should be viewed as a tax bill that paves the way for progress on bigger tax changes in 2016 and 2017, including knocking corporate tax rates down to 25 percent or less. Lawmakers secured permanent extensions for the federal research credit, business expensing in Section 179 of the tax code, the child tax credit and the Earned Income Tax Credit, among others, and two- or five-year extensions for other provisions.
“I really don't think we should call it extenders anymore. It's a tax bill,” Hatch said. “I think ultimately it'll go away with that type of legislating, always waiting ‘til the end, never knowing what's going to happen, people throwing in things, you know, garbage in there and so forth.”
The Senate passed the bill (H.R. 2029), a combined tax and omnibus spending measure, 65-33, after the House approved the measures separately. The trillion-dollar legislation was signed by President Barack Obama Dec. 18.
Health, Energy Provisions
The spending bill also contains a two-year delay of the 40 percent “Cadillac tax” on high-cost health insurance plans under the Affordable Care Act, as well as extensions to several renewable energy credits and a tax break for oil refiners. The tax portion, which will cost the government an estimated $622 billion in forgone revenue, includes a two-year delay of the ACA's excise tax on medical devices and new rules for real estate investment trusts, including spinoffs related to REITs.
A tax credit of 30 percent on solar investment will be phased out by 2022, and the 2.3 cent per kilowatt-hour production tax credit for wind energy will phase out in 2019.
Hatch said Dec. 17 that he'll revisit the medical device tax in 2016, aiming for full repeal separate from any broad tax overhaul. In a statement Dec. 18, he said passage of the measure topped off “a year of historic policy victories.”
The Cadillac tax is also a target for repeal because of its effect on both elite corporate health plans and union plans.
President Obama, however, rejects that proposal.
Business groups including the U.S. Chamber of Commerce applauded delaying the Cadillac tax, which was supposed to go into effect in 2018.
“Although the Chamber will continue to push for full repeal of the excise tax, the delay is a step in the right direction and gives employers additional time to protect the coverage valued by their employees,” said the group's president, Thomas Donohue, in a statement. The bill also includes a one-year delay to an annual excise tax imposed on health insurers.
New Starting Point
As Congress prepared to finish its business for 2015, lawmakers on both sides of the aisle agreed that the legislation breaks with past practice and sets a new starting point for tax changes that reduce rates, pare deductions and possibly produce new revenue to reduce the budget deficit or pay for transportation projects.
“Getting a number of provisions made permanent helps because now we've got a pretty clear record on what we want to do, with some of these things that we certainly want to keep,” said Rep. Charles Boustany Jr., (R-La.) a senior member of the House Ways and Means Committee. Even the longer, but temporary, extensions help frame the debate-to-come, he said, citing the five-year extension of look-through treatment for payments of dividends, interest, rents, and royalties between related controlled foreign corporations.
“We think this is a nice down payment to begin tax reform,” Boustany said.
Boustany said he expects the Ways and Means Committee to schedule hearings early in 2016 on a broader tax overhaul.
Next Up: International Taxes
Among the issues that could advance in 2016, Boustany said, is a revamp of U.S. international tax policies. He told Bloomberg BNA he expects to continue work in that area, coordinating with Sen. Charles E. Schumer (D-N.Y.), a member of the Finance Committee. Schumer told reporters Dec. 18 that he remains confident lawmakers can make progress on international taxes, even in a presidential election year.
“We're going to try to do something in 2016,” Schumer said. “I think the general proposition that you would tax the money that corporations have overseas and use that money for major infrastructure—we have an infrastructure bill but it's not close to our needs—stands very strong.”
A tax overhaul may face better prospects for a few reasons, said lawmakers and lobbyists following the issue. From a financial perspective, the tax bill just passed by Congress changes the budget baseline by more than $600 billion over a decade, which can help lawmakers reduce tax rates without raising the deficit. Politically, lawmakers may have given themselves some momentum and dealt with at least a few of the policies that can be costly and divisive, such as bonus depreciation, which is set to be phased out by 2019.
Hatch told reporters election years are always challenging for passing major legislation, and that 2016 promises to be especially bitter. On the other hand, he said, Schumer—the third-ranking Democrat in the Senate—is the best dealmaker in Congress and could help advance further tax agreements if he resists partisanship.
If Congress is looking for revenue to fund highways and other projects, tax changes in the next few year may not be the answer, Rep. Earl Blumenauer (D-Ore.) told reporters Dec. 17. Such a big amount of money is more likely to come from another source, such as a carbon tax, which Blumenauer said he believes Congress will pass sometime in the next decade.
Even if the term “extenders” fades, Congress has only pared back the number of temporary provisions to 33 from 52. All have constituencies, from a handful of energy-efficiency credits for homes and commercial buildings, a favorite of Sen. Benjamin L. Cardin (D-Md.) and others, to the credit for electric two-wheeled vehicles sponsored by Sen. Ron Wyden (D-Ore.).
When he was chairman of the Senate Finance Committee in 2014, Wyden said he was finished with short extensions of tax policy (65 DTR G-4, 4/4/14).
As big an accomplishment as the latest tax bill may be, its scope is limited, Hatch told reporters. “This is a relatively small package from the tax reform standpoint, compared to what comprehensive tax reform is going to be,” he said.
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