Industries ranging from electric motorcycles to biofuels will soon have to schlep up to Capitol Hill to defend their tax breaks, collectively known as extenders, but whether Congress actually scraps the controversial provisions remains an open question.
House Ways and Means Committee Chairman Kevin Brady has said that his tax-policy subcommittee plans to hold hearings in which lawmakers examine each of the 30-plus temporary tax breaks—regularly renewed by Congress—and then decide which ones get the axe.
Brady gave a bit more indication of what his panel will be looking for in a speech Thursday at the Tax Council Policy Institute’s annual conference in Washington, saying that they’ll be examining whether each provision is unnecessary after last year’s tax-code overhaul.
“Temporary provisions that don’t satisfy this test after a thorough review should be eliminated, and those that would benefit our economy for the longer term should be made permanent,” Brady said.
That will likely set into motion a flurry of lobbying, cajoling, and perhaps hand-wringing from industries affected by the extenders package as lawmakers weigh the value of their tax break.
“For industries that want to move forward and make this a permanent or longer-term part of our code, I’ll be asking, ‘And what will you give up to make sure that these provisions become a longer-term or permanent part of our code?’” Brady said.
This isn’t the first time that Congress has pledged to sweep away the tax-extender detritus while making worthwhile breaks longer-lived, or even permanent. When it passed as part of a broader funding bill, the 2015 Protecting Americans from Tax Hikes Act made permanent 19 expiring provisions, with the implication that many of the rest were to be left to expire. That didn’t happen, and in early February, Congress extended most of those tax breaks retroactively for tax year 2017.
Jonathan Traub, a managing principal at Deloitte and a former staff member on the Ways and Means Committee, said whatever comes out of the committee probably won’t look like the PATH Act. That measure made permanent or extended more than 50 provisions. This effort would be on a smaller scale, with more focus on eliminating breaks after the tax overhaul.
“I think in the chairman’s mind it’s less than PATH 2.0, because it would be a reduction in the number of provisions extended beyond 2017, which requires some policy and political decisions about which ones merit a further extension,” Traub said.
Companies will be eager to line up to defend their breaks, he said.
“If you are advocating an extension of any of them and don’t speak up, you really are putting your provision at risk, so I would assume they would all be prepared to come talk about them in whatever venue Brady establishes for it,” Traub said.
Kurt Kovarik, vice president of federal affairs for the National Biodiesel Board, said his industry was disappointed that Congress only extended a $1-per-gallon tax credit for biodiesel blenders through 2017 in the February bill, but that his group would press Congress for a longer-term fix.
“We will continue to make the case that a long-term extension of biodiesel and renewable diesel-tax incentives is good energy policy, good tax policy, and would produce more of the environmental and economic benefits that were envisioned when Congress designed the incentives,” Kovarik said in an emailed statement.
Also up for debate is a three-year depreciation timeline for racehorses.
“Going forward, we’d like to see it reinstated as well,” said Alex Waldrop, president and CEO of the National Thoroughbred Racing Association. “We’ve worked for many years to keep that three-year depreciation available to racehorse owners and racing partnerships because it better aligns the deductions with the corresponding income opportunities on an annual basis.”
Waldrop said since a racehorse’s career is on average three years, a one-year depreciation timeline would cost owners, as horses are still generating income in their second and third years. Waldrop said his group is planning a push to defend the tax break.
Even if Ways and Means puts together a package, finds a legislative vehicle for the measure this year, and the bill passes the House, there is still the Senate, where lawmakers have been more cool to a wholesale culling of extenders.
“The Senate tends to be, I think, a bit more interested in extending all of them a bit more than in the House, where the House has been more skeptical of that,” Traub said.
Many of the tax provisions have their biggest backers in the Senate. Majority Leader Mitch McConnell, whose Kentucky home state is the heart of American horse racing, has supported the racehorse provision, which he helped insert into the 2008 farm bill originally. That provision would cost $37 million in 2018, according to the Joint Committee on Taxation.
Sen. Chuck Grassley of Iowa has been a longtime advocate of the biofuel tax breaks in the extenders package. An aide to Grassley said he will continue to advocate for longer-term certainty for the biofuel provisions.
In the House, Brady said he hasn’t laid out a timeline for hearings on the extenders, or moving an extenders-overhaul package, saying that they will come “soon.”
“We want to make sure, that you have a fair chance to be able to lay out that case, why they ought to be a longer-term part of the tax code and how we do it,” Brady said.
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