Tax writers are under pressure to renew temporary tax breaks, called extenders, as businesses and individuals seek certainty with tax-filing season underway.
Many of the temporary tax breaks expired after 2017, meaning Congress would need to make the renewal of the provisions retroactive to 2018. Expired provisions include a railroad track maintenance credit under tax code Section 45G as well as breaks for biofuels and mortgage insurance premiums.
These temporary tax breaks are almost a rite-of-passage for Congress, especially at the end of the year, and can be a chance for lawmakers to slip in perks that are popular in their districts. The Senate failed to take up a House-passed bill at the end of 2018.
Senate Majority Whip John Thune (R-S.D.) Jan. 30 highlighted a must-pass spending bill as one option for moving an extenders package. But a day later, he said it is unlikely that extenders will be able to hitch a ride on the February spending bill.
“I don’t anticipate that happening,” Thune told reporters Jan. 31. “Right now I would say it’s more likely than not that the scope of this current discussion stays fairly narrow.”
House Ways and Means Chairman Richard Neal (D-Mass.) said extenders are being discussed, but was somewhat circumspect on whether they would get done before this year’s tax season ends in April.
“We’re going to wait and see,” he told reporters Jan. 30.
Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said Jan. 30 that extenders are being negotiated, but he didn’t elaborate on plans.
Typically, the Senate has been more interested in the tax breaks while some in the House like Ways and Means ranking member Kevin Brady (R-Texas) have talked about ending the practice.
Lawmakers may be hesitant to push extenders if it could complicate reaching an agreement on a spending bill, which is being negotiated while the government is funded by a short-term measure that ended the partial government shutdown. Still, the tax-writing committees want to be prepared if the scope of government funding negotiations expand.
The Bipartisan Budget Act of 2018 (Pub. L. No. 115–123) retroactively renewed more than 30 extenders that had expired in 2017, which the Joint Committee on Taxation estimated cost about $15 billion over a decade. All but a few of those are currently expired for 2018.
The five-week government shutdown, which ended Jan. 25, added more uncertainty.
Officials have said that tax refunds will go out on time. But failing to pass an extenders package before filing season ends could cause trouble for individuals and businesses that rely on the tax breaks.
Many extenders are designed to prompt taxpayers to make certain types of investments or business decisions, said Jeff Ziarko, founder and principal at Economic Policy Strategies in Washington.
“The longer the extenders provisions are expired, the more their incentive effect is dulled,” said Ziarko, who worked as an aide to former Ways and Means member Sander M. Levin (D-Mich.). “Taxpayers need certainty. A lot of these provisions are meant to spur investment and that’s very difficult when you have to make a judgment about whether or not Congress is going to act.”
Businesses and individuals can amend their tax returns if Congress acts after they have already filed, but that can be costly and disruptive, Ziarko told Bloomberg Tax.
Most businesses will probably decide that it is worth it to adjust their returns, but they may be more wary of the process moving forward and potentially less likely to make the types of investments Congress is trying to encourage, he said.
It also could be more confusing for individuals, who may not know how to amend their returns, Ziarko said.
There is significant support from both Democrats and Republicans to pass extenders sooner rather than later, said Jorge Castro, a former congressional tax counsel.
“The main obstacles are finding a legislative vehicle in the near-term and trying to keep the tax package contained,” Castro, now with Miller & Chevalier Chartered, said.
Some lawmakers might try to add new proposals to the package as well as fixes to the 2017 Republican tax bill, he said.
“The question is how do you contain the discussion and prevent the extenders package from collapsing under its own weight,” Castro said.
Another hurdle to reaching an agreement on extenders could be the pay-as-you-go provision adopted by House Democrats.
The Democratic rules package requires Congress to pass mandatory spending increases or tax cuts to offset legislation that would increase the deficit. House Ways and Means Committee member Bill Pascrell (D-N.J.) said the pay-as-you-go rule should apply to extenders.
—With assistance from Jack Fitzpatrick and Nancy Ognanovich