Lawmakers will continue to look for opportunities to act on expired tax breaks known as extenders that weren’t part of a deal to fund the government for the rest of this fiscal year.
Tax extenders, called that because the provisions are temporary and typically renewed by lawmakers every few years, include many politically popular breaks that have broad bipartisan support. But the push to extend the tax breaks faces some obstacles, including the difficulty of getting standalone legislation through the Senate and the concerns of some House Democrats about whether the tax breaks should be paid for by revenue increases or spending cuts elsewhere.
Pressure from industries that rely on the perks—including the biofuel and railroad industries—will continue to build. Most of the tax breaks expired after 2017 and would need to be extended retroactively so businesses could claim them on their 2018 tax returns.
“If they can’t figure out a way to get extenders done in the short-term, I think it’ll be one of those things that will be bubbling all year long,” said John Gimigliano, principal-in-charge of federal tax legislative and regulatory services at KPMG LLP in Washington. Gimigliano worked as senior tax counsel for Ways and Means from 2005 to 2008.
The Right Vehicle
Senate Finance Committee Chairman Chuck Grassley (R-Iowa), who pushed for the inclusion of tax extenders in the funding bill, said in a Feb. 14 floor speech that he will introduce legislation addressing tax extenders and disaster tax relief.
House Ways and Means Committee Chairman Richard Neal’s (D-Mass.) office didn’t return a request for comment. He previously told reporters extenders are under discussion but wouldn’t elaborate on whether the House would act on them before this year’s filing season ends.
Other lawmakers have already unveiled bills to extend various individual extenders. But a broader bill anchored by popular tax provisions that haven’t yet expired could be the vehicle to pass extenders, lobbyists told Bloomberg Tax.
Those measures, which expire at the end of this year, include the New Markets Tax Credit for investment in low-income areas; the Work Opportunity Tax Credit for hiring individuals who have faced career barriers, like veterans; the look-through rule for controlled foreign corporations under tax code Section 954(c)(6); and tax cuts for beer brewers, cider makers, vintners, and distilleries.
The push for permanent breaks for craft brewers already has bipartisan momentum in the House and Senate. Reps. Mike Kelly (R-Pa.) and Ron Kind (D-Wis.) reintroduced legislation on Feb. 13. The Senate companion is (S. 362).
There is “an appetite on both sides” to address extenders, Rep. Tom Reed (N.Y.), a Republican on Ways and Means, said Feb. 13.
An expired tax credit for short line railroad track maintenance under tax code Section 45G is an example of an extender that has significant support in Congress. Ways and Means member Earl Blumenauer (D-Ore.) introduced legislation (H.R. 510) in January to make that tax credit permanent. The bill has more than 100 cosponsors in the House. Companion legislation in the Senate (S. 203), introduced by Senate Finance member Mike Crapo (R-Idaho), has more than 20 cosponsors.
But Reed, a cosponsor of H.R. 510, said combining the extenders into one package is still the best bet for them this year.
“The realistic assessment is that we’re looking at these all going together in a vehicle rather than one-off legislation,” Reed said. “When we get through the political silly season and when there are opportunities to get something done, this is one of those areas I think can bring people together.”
Possible vehicles for the tax extenders include upcoming must-pass legislation to increase the federal debt limit or to raise budget caps, Reed said. If the issue gets pushed out until the fall, Reed said, Congress could think about attaching them to fiscal year 2020 spending legislation.
Pressure to act on extenders will continue to build as tax filing season continues.
The short-line railroad industry, which offers freight rail service to agriculture, energy, manufacturing, and other industries, will continue to push Congress on the expired track maintenance credit, the American Short Line and Regional Railroad Association’s President Chuck Baker told Bloomberg Tax in a Feb. 14 emailed statement.
An expired tax break for biodiesel is another extender with vocal support. Minnesota Gov. Tim Walz (D), in a Feb. 14 letter, urged House Speaker Nancy Pelosi (D-Calif.) to act on the expired credit, which incentivizes the blending of biodiesel—vegetable oil or animal fat-based fuels—into the diesel fuel supply. Walz said the biodiesel industry increases demand for Minnesota soybeans by 13 percent, supports thousands of jobs, and reduces vehicle emissions.
Ways and Means ranking member Kevin Brady (R-Texas), who has historically described extenders as bad tax policy, said he would like to see the provisions for biodiesel and short line railroads worked out sooner rather than later.
Any effort to move expired tax breaks individually faces some obstacles, including Senate rules that restrict the chamber from moving legislation as quickly as the House does unless there is unanimous support. That means Senate leadership is choosier about what legislation is brought to the floor.
A package with extenders could move in the second half of the year, said Henrietta Treyz, a managing partner at Veda Partners LLC in Bethesda, Md. Still, other industry priorities, like the fate of U.S.-China negotiations, could take precedence, she said.
The overall extenders package also could be tripped up by the House rules package adopted by Democrats for this Congress, which requires spending increases or tax cuts to offset legislation that would increase the deficit.
“None of it is ever paid for, and while some of us don’t mind some of those, we got to start paying for some of these things,” House Ways and Means member Bill Pascrell (D-N.J.) told Bloomberg Tax Feb. 14. “And then we have to look for offsets. What are you going to use to pay for them, and how much?”
The longer it takes Congress to act, the less support there may be to retroactively extend tax breaks that expired more than a year ago.
“The longer they wait, the less merit to the argument that they have incentivized behavior that has already occurred,” House Ways and Means member Lloyd Doggett (D-Texas) told Bloomberg Tax.
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