In 2015, Congress attached language to an end-of-year funding bill that made permanent most of a collection of temporary tax breaks known as extenders. Many of the rest, they said, were meant for the policy dustbin.
Fast-forward more than two years and to another funding measure, and Congress has resurrected many of those breaks—at least for the tax year for which Americans are currently filing, 2017. The budget bill Congress passed early Friday morning extends more than 30 expiring tax provisions, ranging from biofuel credits to tax breaks for electric motorcycles and racehorses, a move pushed by a variety of lawmakers with interests in the extenders package.
It’s part of a decade-long routine of periodically renewing the tax breaks, often retroactively, only to have them expire and then get renewed again at the last minute before filing season starts. Lawmakers have said for years they’ll drop the habit—they plan to hold hearings on extenders this year—but they haven’t been able to shake it. Compounding the issue, last year’s tax-code overhaul created a massive new set of temporary breaks for individuals set to expire in 2025.
Extenders are just too enticing as an easy out for advancing tax policy on the cheap, at least when it comes to budget scoring, critics of the practice say.
“So what happens is when the tax cuts are first put into place, if Congress isn’t willing to offset their cost and they are done through reconciliation or they have an amount they are limiting themselves to, one of the tricks they use is to say they will expire,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a deficit-hawk group.
And when the time comes for them to expire, there’s not enough political will to let them go. Interested groups ramp up lobbying to preserve their tax cut and are typically successful, MacGuineas said.
The Joint Committee on Taxation said the extenders portion of the budget deal, along with a few disaster-aid-related tax breaks, will cost $17.4 billion over a decade. $13.3 billion of that will come in 2018 as the bill sunsets most extenders at the end of last year, so taxpayers will be able to take advantage of them only in the filing season currently underway.
Typically, extenders packages have been passed near the end of the year, giving taxpayers enough time to prepare their returns with the tax breaks included. Congress missed that deadline this year, despite Senate Finance Committee Chairman Orrin Hatch introducing an extenders bill shortly after lawmakers passed the tax overhaul in December. That means individuals and businesses who have already filed their taxes for 2017 and want to take advantage of the extenders will need to file an amended return.
Though most of the tax breaks renewed are small-dollar, a few energy provisions are significant. Industry representatives had pushed for breaks like an extension to a $1-per-gallon tax credit on biodiesel and an extension to a production tax credit for nuclear-energy projects, a boon for Republican Sen. Johnny Isakson, whose home state of Georgia has a nuclear power plant under construction that has run into financial difficulty in the past.
Many renewable-energy breaks were renewed for 2017, but the retroactive-only timeline wasn’t what GOP Sen. Chuck Grassley of Iowa, one of the biofuel industry’s biggest backers, had expected. Typically, those breaks are both retroactively renewed and also renewed for another one or two years.
“That’s not very good, and it’s contrary to the promise I got from the leadership of both the Senate and the House, including a Nov. 9 telephone conversation that I had with [House Speaker Paul] Ryan,” said Grassley, a member of the tax-writing Finance Committee.
It’s an example of the powerful backers many extenders have in Congress. Grassley has said those tax breaks were intentionally left out of last year’s overhaul bill, but on the promise from leadership that Congress would act on a package soon.
House Ways and Means Committee Chairman Kevin Brady has long said he’s opposed to using extenders as tax policy, but that each provision has an industry strongly tied to it and lawmakers advocating it.
A Ways and Means majority spokesperson said that the extenders package in the budget bill is meant to align the tax breaks with the pre-overhaul tax code, one in which individuals and businesses may have planned for extenders to be renewed. That’s why most of the extenders passed last week are already expired, sunsetting at the end of 2017.
And the committee says it hopes to axe as many of the tax breaks as possible this year.
Rep. Vern Buchanan, chairman of the Ways and Means Tax Policy Subcommittee, told reporters last Tuesday that he plans to hold hearings in which supporters of the tax breaks will defend the provisions, set against the steep business tax cuts from last year’s overhaul bill.
“When you get a 43 percent cut in your taxes, you’ve got to take a hard look at whether these extenders make sense in today’s age, moving forward,” Buchanan said.
But lawmakers have pledged to do away with extenders before, only to bring them up again.
GOP tax writers praised the 2015 extenders package, saying it marked an end to temporary tax breaks. At the time, Hatch said on the Senate floor that the bill would put “an end to the repeated exercise that has plagued Congress for decades.”
A spokesperson for the Senate Finance Committee majority said Friday the panel has a track record of vetting extenders policies and that the extenders included in the budget package were an important step forward, “but there’s still work to do.”
Finance ranking member Ron Wyden on Wednesday noted to reporters the contradiction between the pledges to end extenders and the pressure to keep renewing the tax breaks.
“Kevin Brady said for literally years that he was going to be doing tax reform and the days of extenders are over,” Wyden said. “So it seems to me that Chairman Brady’s chickens are coming home to roost.”
Despite talk of ending temporary tax policy, the recently passed budget bill adds to a now growing list of temporary breaks. Several individual tax breaks included in last year’s tax overhaul, such as lower individual tax rates and an expansion of the child tax credit, sunset after 2025. Those provisions were made temporary to allow the bill to get under a $1.5 trillion cost limit mandated by Senate rules. Tax writers said at the time that it was unlikely a future Congress would allow the popular tax breaks to expire. That, however, effectively creates a new batch of extenders for lawmakers to grapple with.
“They have created the biggest tax extender of all,” said Howard Gleckman, senior fellow at the Tax Policy Center. “The entire individual-income-tax code is an extender.”
Both Gleckman and MacGuineas say they’re skeptical that this will be the last extenders package.
“I think it’s pretty unlikely,” Gleckman said. “The pressure to extend these things is so great, because supporters come in and say, ‘It’s a tax increase; you can’t raise my taxes.’ So they just keep doing it.”