Lame Duck Congress Likely to Pass Tax Extenders

But a major sticking point might be whether extenders like the R&E tax credit and bonus depreciation should be permanent.
David KatzNovember 6, 2014

A panel of Congressional staffers was unanimously optimistic Thursday morning that the lame-duck Congress would pass a package of “extenders,” including ones that would preserve tax breaks for research and development investments and purchases of equipment.

Dave Camp, chairman, U.S. House Ways and Means Committee

Dave Camp, chairman,
U.S. House Ways and Means

Summing up the potential for enactment of the extension of many of the 62 federal tax provisions, including ones benefiting businesses and individuals, that expired on December 31, 2013, George Callas, the staff director of the House Ways and Means Subcommittee on Select Revenue Measures, said that the lame-duck Congressional session, which ends on January 3, 2015, has “the space to get a deal, the opportunity to get a deal” and the time to “do some really good tax policy on a bipartisan basis.”

Like Callas, a Republican, three other Congressional staffers expressed a great deal of optimism about such actions at a conference sponsored by KPMG and Bloomberg BNA on the federal tax implications of Tuesday’s elections.

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For example, Cathy Koch, the chief adviser to Senate Majority Leader Harry Reid, a Democrat, said that it was a “very likely” that a legislative package of extenders would be enacted in this session. And Jim Lyons, a Republican tax counsel on the Senate Finance Committee, and Aruna Kalyanam, a House Democratic tax counsel, both said they were “optimistic.”

Three of the most mentioned expirations of business tax provisions are the “Research and Experimentation” tax credit, bonus depreciation and the so-called Section 179 Election enabling small businesses to deduct certain property expenses from their taxes.

The R&E credit, which has been extended 15 times since 1981, enables companies to claim tax credits for research costs under certain conditions. A bill sponsored by Democratic Sen. Ron Wyden of Oregon that is currently awaiting attention by the full Senate would extend existing R&E credits through 2015 and is estimated to cost the federal government approximately $16 billion over 10 years.

Enacted as part of President Obama’s economic-stimulus legislation early in his first term, the 50% bonus depreciation provision applies to qualified property bought and placed in service before a certain date. Under the Wyden measure, the date is January 1, 2016 (before January 1, 2017 for certain longer-lived and transportation assets). A two-year extension of this provision is estimated to cost $2.85 billion over 10 years.

Extending the Section 179 Election would enable companies to choose to recover all or part of the cost of certain qualifying property by deducting the expense in the year the company places the property in service. Under a proposal in the Wyden bill, which is known as the EXPIRE Act of 2014, the cost is estimated at $3.2 billion over 10 years.

A major sticking point to an enactment of a package of extenders appears to be whether it would make the provisions permanent, the panelists seemed to suggest.

Quoting his boss, retiring House Ways and Means Chairman Dave Camp, Callas said the United States is “the only major industrial country that has so many temporary [tax provisions].” Camp’s philosophy, he said, was that instead of rubber stamping extenders each time they had to be renewed, legislators should make a choice about which provisions should be permanent and jettison those that are unworthy.

To Kalyanam, that would be too draconian a step. “Just cherry-picking” tax measures Congress thinks should permanently survive and eliminating those that seem to work on a temporary basis would be “doing a disservice” to taxpayers, she said.