Tax Provisions Expire At End of 2013
Roughly 50 tax credits and business deductions expire at the end of 2013, leading more groups to suddenly becoming vocal about “tax extenders” legislation.
Sen. Charles Grassley, R-Iowa, said tax credits for a broad array of businesses did not get a vote this year because key lawmakers on the House Ways & Means and Senate Finance committees all believe a major tax-reform bill is still possible.
Expiring tax credits would amount to roughly $54 billion in potentially lost tax breaks for 2014. The big ones are a couple that most farmers use to offset income — bonus depreciation and Section 179 deductions. Those incentives amount to nearly $41 billion in potentially lost tax savings for 2014.
Effectively, 50% bonus depreciation comes to an end on Jan. 1, 2014. Section 179 deductions don’t end, but the deduction falls from the current $500,000 to $25,000. Section 179 is one of the largest tax breaks for farmers, mainly because it is limited to businesses that spend less than $2 million on equipment in a given year.
Wind-energy companies are once again raising the specter of what will happen to the Production Tax Credit, a credit first enacted in 1992. Biofuel businesses are concerned about the second-generation Biofuel Producer Tax Credit, a special biofuel plant depreciation allowance, and the Alternative Fuel Vehicle Refueling Property Credit.
Senate Finance Committee Chairman Max Baucus, D-Mont., is expected to roll out another draft on tax-reform issues as early as Wednesday that would specifically detail potential changes to tax breaks in the energy sector.
Congress has a tendency to extend these tax credits by one- to two-year intervals, mainly because the costs and budget scores mount if each of the credits were simply allowed to carry forward.
“There are about 50 extenders of which wind energy is one of them,” Grassley explained to reporters on a call Tuesday. “They tend to go as a package. It hasn’t been discussed up until now because when you start talking about extenders, whether it is wind, or the R&D tax credits or the other 48, people think when you start talking about extenders that you aren’t very serious about tax reform.”
Grassley said Baucus announced during an informal committee session last week he would take up a tax-extension bill early in 2014. “He wasn’t specific on when it would happen, but he said we are going to have to do extenders next year.”
A major tax-reform bill could still happen. Grassley said he “didn’t want to throw cold water” on the idea, but he acknowledged the possibility of a tax overhaul in 2014 is slim because of mid-term elections. Still, he noted the last huge tax reform package was in late 1986, just before an election. “That’s going to be a massive load, where a tax extenders is pretty simple compared to that.”
On overall tax reform, the Tax Reform Act of 1986 was signed into law in late October that year. Conference negotiations began that summer, after the Senate finally adopted its own tax package. But the House actually had passed its own version of the legislation in December 1985, clearing a path for the Senate to debate its bill.
As of now, neither chamber has passed a measure. The House Ways & Means Committee and Senate Finance Committee have rolled out proposals, but neither committee has actually advanced a bill.
Looking for some history of the 1986 act, Michael R. DeLong, a retired U.S. Marine Corps Lieutenant General, wrote an analysis on the challenges faced by the legislation back then.
“It was so difficult for tax reform to gain traction because it was not even considered the most important item on the agenda by most Americans,” DeLong wrote in “The Tax Reform Act of 1986: A Blueprint for Modern Tax Reform.”
“It was frustratingly difficult for those who were dedicated to getting reform passed, because although members of Congress would be punished if they were seen as obstructing reform, there was very little incentive for them to make a gamble politically by wholeheartedly supporting it. What ended up happening was a large amount of hedging throughout the process of tax reform, of cautious support but with low overall expectations by both the American public and members of Congress,” DeLong wrote.
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