Thanksgiving in Washington means it’s time to call K Street.
A slew of corporate and other special-interest tax breaks is scheduled to expire at the end of the year, threatening the bottom line of everyone from NASCAR and Hollywood studios to electric motorcycle companies. They were written into law as temporary, but nearly all have been extended year after year in what has become a holiday tradition in the Beltway.
This year, there’s another wrinkle: Congress’ top tax negotiators—Montana Democratic Sen. Max Baucus and Michigan GOP Rep. Dave Camp—have declined to move forward with a tax extenders bill, promising instead a comprehensive overhaul that would actually evaluate these tax breaks on their merits. But a big tax reform bill doesn’t even exist yet. And with the clock running out, Congress could end up handing out another round of temporary tax giveaways.
Industry representatives, lobbyists, and their political allies insist that these tax breaks are critical to job creation and the country’s economic health. ”We were witness to the hardships over 5,000 Americans had to endure when they lost their jobs because of the anticipated expiration of the tax credit,” the Governors’ Wind Energy Coalition wrote in a letter earlier this month.
NASCAR is encouraging racing fans to call up members of Congress to convince them to continue a tax break allowing racetrack owners to accelerate depreciation on their assets. Though NASCAR itself doesn’t own tracks, it is lobbying for the tax break. Getting rid of it would kill jobs and investment in rural America, says Marcus Jadotte, vice-president of NASCAR public affairs. “Those facilities have a huge economic impact on local communities.” The cost? A provision also tucked into the fiscal cliff deal at the cost of $78 million, according to the Joint Committee on Taxation.
Meanwhile, there are calls from both left and right to end certain tax giveaways. Heritage Action, Americans for Prosperity, and other conservative groups, along with with some House Republicans, have called for Congress to end the wind production credit. Citizens for Tax Justice, a left-leaning advocacy group, opposes the active financing exemption, which it blames for helping multinationals dodge taxes and send jobs overseas.
The entire grab bag of tax extenders cost $76 billion the last time around, with $64 billion going to businesses alone, according to Congress’s Joint Committee on Taxation. That was during January’s fiscal cliff deal, when lawmakers quietly slipped in a tax extenders package that was never a central focus of the debate, including a tax rebate for rum distilled in Puerto Rico and the Virgin Island (worth $222 million); special expensing rules for certain TV and film productions ($248 million); a wind energy production tax credit ($12.2 billion); and the “active financing” exemption that allows multinational giants like General Electric to pay extremely low taxes by deferring U.S. taxes on certain kinds of overseas income ($11.2 billion).
It was never supposed to happen this way. Each of these provisions has an expiration date that “can be seen as a mechanism to force policymakers to consider the costs and benefits of the special tax treatment and possible changes to increase the effectiveness of the policy,” writes Molly Sherlock in a report for the Congressional Research Service. “This reasoning is compelling in theory, but has been an absolute failure in practice as no real systematic review ever occurs,” she adds.
In fact, no one actually likes having to revisit these tax breaks every year—including businesses themselves, who would prefer a permanent tax overhaul. The popular research tax credit has been extended 15 times since first passing in 1981, according to Sherlock, requiring businesses and industries to hash out the issue over and over again.
The larger goal of tax reform is ”to inject the permanency and certainty into the code that is needed so job creators can better plan for the future, rather than planning around some arbitrary expiration date of a particular tax policy,” says Michelle Dimarob, a spokeswoman for Camp. Given Baucus and Camp’s vow to pass tax reform, “it really undercuts your argument if all of a sudden you turn around” and pass more short-term tax giveaways,” says Steve Ellis, vice-president of Taxpayers for Common Sense.
But having repeatedly failed to achieve the bare mininum, Congress is far from debating a sweeping overhaul, much less passing one. Though Camp promised to release a bill before the end of 2013, it now appears unlikely to happen until 2014, as the GOP’s war against Obamacare has taken center stage. What’s more, Democrats and Republicans still haven’t resolved their fundamental differences over whether a tax overhaul should raise net revenue—a big stumbling block that’s more controversial than any individual provision.
So we could see yet another short-term push to keep these valuable tax giveaways alive. Some of the tax breaks can be applied retroactively, making the Dec. 31 deadline less pressing. But the vigorous push by lobbyists and their allies in Congress makes it unlikely that all of them will perish in 2014. “I don’t get any sense there’s interest in Congress in looking at these at the merits and dumping the ones that serve no purpose. I think they’ll just do what they always do—mindlessly extend them probably some time in January,” says Howard Gleckman, a resident fellow at the Urban Institute.
The Jan. 15 budget deadline, or the 2014 Medicare payment fix, could be their opportunity to live another day. “They become the caboose on whatever train’s leaving the station,” says Ellis.