Congress has just passed a massive tax-overhaul bill, a 500-plus-page measure meant—its backers touted—to sweep away three decades of tax-policy detritus and start over with a clean, modern code.
Less than a day later, it’s back to renewing tax breaks for racehorses.
The Senate Finance Committee released a new measure renewing dozens of expired tax breaks, known as extenders, Wednesday night, shortly after the House passed the broad tax-overhaul measure, sending that bill to the president’s desk for signature.
It’s a stark shift from the plan to start over with a clean tax slate, and critics say the move both adds to the problem of short-term tax policy and shows that lawmakers didn’t achieve all the reform they set out to accomplish in the overhaul bill.
“This legislation was a perfect opportunity to address that—to have a conscious decision, saying, ‘OK, here’s Tax Extender No. 1. Good or bad policy? In or out?’” said Mark Mazur, director at the Tax Policy Center. “And early on, [House Ways and Means Chairman Kevin] Brady and others viewed this as a tax-reform bill, in which case that’s the appropriate time to have this discussion. I think over time it turned into a tax-cut bill, and so that discussion got postponed.”
Tax extenders are nothing new. Over the past decade, Congress made a habit of advancing last-minute, end-of-year tax-extenders bills, often retroactively renewing provisions that had been expired for months. That was all supposed to end in late 2015, when as part of a funding bill, Congress made permanent many big extenders, such as the research and development credit and another credit for expensing certain business purchases.
But Congress didn’t make them all permanent, leaving a hodgepodge of smaller tax breaks for everything from Puerto Rican rum to biofuel sellers. Much of it was meant to expire permanently, lawmakers said at the time. In 2016, Congress did not pass an annual extenders bill, but if the latest bill passes, those breaks will be back on the table for future renewal.
Industry representatives—largely in the energy sector—have been pushing for at least a few provisions in this latest extenders bill. One provision would renew the dollar-per-gallon credit for biofuel blenders. Another would renew a credit for nuclear power projects. The bill also extends tax breaks for so-called “orphan measures” left out of the 2015 bill, which include provisions for geothermal power, fuel cells, small wind-energy projects, and combined heat and power property, which industry groups had been fighting to get into end-of-year tax legislation.
Others are more narrow, such as an extension of the measure enabling racehorse owners to write off the depreciating value of a horse over three years, and a tax break for motorsports complexes. The extension on most varies from one to four years.
The Joint Committee on Taxation has yet to release a budget score for the Senate extenders bill.
In the broader controversy over extenders, the recently passed overhaul bill opens up the possibility that, despite promises to sweep away the kind of messy, crisis-driven elements of tax policy, the measure would essentially create a costly new set of temporary breaks. The bill passed by Congress Wednesday makes its 21 percent corporate tax rate permanent, but a host of individual tax breaks expire in 2025. GOP leaders say no future Congress would allow popular individual tax breaks to expire.
Those temporary individual breaks, combined with possibly reviving the habit of passing extenders bills, sets up a critical round of tax deadlines over the next eight-or-so years, Mazur said.
“You are creating that same kind of dynamic, and no one would think that that’s good fiscal policy,” he said.
Brady said Thursday that he doesn’t approve of the extenders process, and he said that no decision has been made in his tax-writing committee on what to do on the issue in early 2018.
“You already know my position. I think extenders are a horrible way to do tax policy, and the sooner they can be abolished, the better,” Brady told reporters. “The question always is what role do they play in this new tax code, because they’ve always been anchored in the old one, and so we’re going to begin having those discussions when we get back.”
Putting off the extenders question helped lawmakers as they crafted the tax bill. Tax writers based their revenue baseline calculation on that bill to exclude the potential cost of renewing the extenders and several other expiring or expired tax provisions, opening up nearly $500 billion in additional scoring leeway to craft a tax bill that complies with Senate fiscal rules.
“This really is faulty accounting,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a Washington budget-hawk group, “where in the tax-reform effort they justified an additional half-a-trillion dollars from tax cuts that weren’t going to be extended, and then seconds after they passed the tax-reform bill they said, ‘Oh, we want to extend some of them.’”
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