Focus On Expired Tax Incentives.
BY: BEN GANN
At the start of 2013, Congress appeared well-positioned to pass comprehensive tax reform for the first time since 1986. It had just narrowly avoided the fiscal cliff, and there was growing concern that the current tax code had become overly complex, thereby reducing America’s economic competitiveness. Efforts for comprehensive reform were bolstered when Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), the chief tax writers in the Senate and House of Representatives respectively, announced they were working together on rewriting the tax code.
Last summer, the two men toured the country to hear concerns from businesses and convince them of the need to reform the tax code. For his part, President Obama was cool to the idea of comprehensive reform but signaled a willingness to lower the corporate income tax rate, which is currently the highest among industrialized nations.
Sen. Baucus and Rep. Camp were so committed to comprehensive reform last year that they rejected requests to also work on a “tax extenders” bill renewing dozens of incentives that expired at the end of 2013. Baucus released an energy tax reform plan in December 2013; however, the same day the energy tax reform proposal was released, the White House announced it was appointing him Ambassador to China. That move effectively ended comprehensive tax reform efforts in the Senate.
Rep. Camp worked all of last year with House Republicans to reach consensus on a comprehensive tax reform draft. In February, Camp released a proposal to broaden the tax base that included several controversial provisions. They include repealing the last-in, firstout (LIFO) accounting rules and reducing the current $1 million principal cap for the mortgage interest deduction. The plan was dead almost immediately after Speaker of the House John Boehner (ROhio) declined to endorse it.
Attention on Tax Extenders
New Finance Committee Chair, Sen. Ron Wyden (D-Ore.), has moved quickly in advancing a tax extenders bill in the Senate. In April, the Finance Committee approved renewing many of the tax provisions that have expired, or will expire at the end of this year, through 2015. The bill, entitled the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, is meant to be a bridge to comprehensive tax reform.
“This will be the last tax extenders bill the committee takes up as long as I’m chairman,” Sen. Wyden said at committee markup of the legislation. “That’s why the bill is called the EXPIRE Act. It is meant to expire.”
The legislation includes tax incentives of interest to LBM dealers such as the tax credit for energy efficient improvements to existing homes (25C), tax credit for energy efficient improvements to new homes (45L), deduction for energy efficient improvements to public and commercial buildings (179D), accelerated bonus depreciation for capital investments (bonus depreciation) and enhanced first-year depreciation writeoffs for small businesses (Section 179 depreciation deduction).
In May, the EXPIRE Act was brought to the floor in the Senate but failed to garner the 60 votes needed to move forward. The motion failed 53 to 40, and it is unlikely the Senate will take up the legislation again until after the November elections. Sen. Mark Kirk (R-Ill.), who sponsored the bill used as the legislative vehicle for the Senate tax extenders package, was the only Republican to vote with Democrats on the motion. There is bipartisan support for a tax extenders package in the Senate; however, many Republicans remain opposed to the legislation because Majority Leader Harry Reid (D-Nev.) has blocked them from offering amendments to the bill. Sen. Reid and Minority Leader Mitch McConnell (R-Ky.) are blaming each other for the impasse.
Rep. Camp and the House Ways and Means Committee have pivoted from comprehensive reform and started consideration of some expired tax incentives. In May, the committee approved making six expired tax provisions permanent, including increasing the limits for Section 179 depreciation up to $800,000 and indexing it for inflation.
In June, the House passed some expired tax incentives, including the increased Section 179 deduction limits, by a vote of 272 to 144. President Obama has threatened to veto the bill on the grounds that it would add to the federal deficit due to the lack of a budgetary offset.
Given the dwindling number of days in the legislative calendar and upcoming midterm, Congress is unlikely to finish its work on tax extenders until the lameduck session in November or December.
The on-again, off-again nature of many tax incentives has limited their effectiveness for businesses and consumers. When comprehensive tax reform was last enacted in 1986 the process took five years. Until new tax reform measures are in place, the extension of recently expired tax provisions is needed to promote increased investment by businesses and reduce economic uncertainty.