Letting Credits Expire Part Of Strategy For Code Revision: Taxes - U.S.
08 November 2013
Posted by: Author: Marc Heller
Author: Marc Heller (Bloomberg)
Odds grow that Congress will let
dozens of tax breaks, including credits for alternative energy
production and research and development, to expire at the end of
this year as part of a move to revise the U.S. tax code,
lobbyists and analysts following the issue say.
Allowing the so-called tax extenders to die, at least
temporarily, would clear the legislative decks for lawmakers to
study more intently which should be continued and which should
be permanently ended, Bloomberg BNA reported.
Items that appear especially vulnerable include the
production tax credit for wind energy and credits for efficient
home appliances. Others, such as the research and development
credit, are broadly popular and likely to survive in the long
run, said the lobbyists and analysts.
The expirations of all the credits may lapse well into 2014
while lawmakers map a path for the comprehensive tax revision
promoted by Representative Dave Camp, the Michigan Republican
who heads the House Ways and Means Committee, and Senator Max Baucus, a Montana Democrat and chairman of his chamber’s Finance
Committee. As an indication of this, lawmakers and congressional
staff members on these two tax-writing panels have said they are
paying more attention to broader tax changes than to the
provisions expiring in less than two months.
"At least for right now, we are much more focused on tax
reform and really not talking about extenders at all at this
point,” Shawn Novak, senior accountant and tax adviser for the
Senate Finance Committee’s Republican staff, said at the
American Institute of CPAs National Tax Conference in Washington
on Nov. 4.
The National Association of Manufacturers and other
business groups have urged Congress to end the practice of
annual tax-break extensions even as they support provisions such
as the research and development credit and the look-through rule
for foreign subsidiaries of U.S. companies known as controlled
foreign corporations. The look-through rule allows dividends,
interest and rent to be transferred between CFCs without
triggering a U.S. tax obligation.
"This is not the way to do business,” said a lobbyist for
one business group critical of Congress’s approach who asked not
to be identified when commenting on the process that is
unfolding. "It’s not effective for business planning.”
Businesses are left guessing whether they can count on
their credits for tax year 2014, Jeff Porter, chairman of the
AICPA Tax Executive Committee, said at this week’s conference.
"Not knowing what kind of depreciation structure we are
going to have is going to have an impact and potentially slow
down our clients’ planning process,” Porter said.
Each provision that may expire has their own political
constituency and most aren’t especially costly, compared with
other, more far-reaching tax breaks.
The research and development credit is the most expensive,
costing $14.3 billion in forgone taxes over a decade, the
Congressional Research Service said in a June report. An above-the-line deduction for college tuition and related expenses will
cost $1.7 billion over the same period, and the credit for
energy-efficient appliances $700 million, the CRS said.
By contrast, the tax deduction for home mortgage interest
takes $379 billion out of government revenue in half that time,
the congressional Joint Committee on Taxation said in its
February estimates on tax expenditures.
Advocates for revamping tax policy call the provisions a
good example of how complicated and outdated the code has become
since the last major changes in 1986. The credit for energy-efficient appliances includes efficiency standards so common and
easily attained, for instance, that the break doesn’t change
consumers’ purchasing decisions, the American Council for an
Energy-Efficient Economy said.
A sharp debate awaits over the wind power credit, lobbyists
on both sides of that issue said. Congress changed the credit as
part of the last extenders package to allow the break for
facilities that begin construction this year, even if they
aren’t yet brought online. That provision, which applies to
other alternative energy sources as well, would cost the
government $12.2 billion over a decade, CRS said.
Democratic Senators Debbie Stabenow of Michigan and Ron Wyden of Oregon, appearing at an American Wind Energy
Association forum on Nov. 4 in East Lansing, Michigan, pledged
they would seek certainty and fairness for the industry wind
power as part of tax code revisions.
"If you want an ‘all-of-the-above’ energy policy, you have
to have a competitive energy landscape,” Wyden said. "What
we’ve got to do is start that move towards parity.”
The fight over wind energy credits, enacted in 1992, isn’t
new. "Wind has had a big target on it for a long time,” said
Patricia Wolff, a tax lobbyist for the American Farm Bureau
Federation, which supports it as an extra source of income for
farmers who lease their land for windmills.
Several other energy-related provisions hang in the
balance, as well. The credit for efficient home appliances
appears likely to end because industry isn’t pushing for it,
Steve Nadel, executive director of ACEEE, said in an interview.
This article first appeared in bloomberg.com.