Senate Hoping for Action on Tax Extenders

May 14, 2014

pic-taxes-fileOn Tuesday, the Senate agreed 96-3 to end debate on a motion to proceed to a bill (H.R. 3474),  an unrelated bill previously passed by the House which would address health care coverage and employment issues for veterans. This bill is expected to be the vehicle, in order to garner more broad support, for legislation (S. 2260) that would extend nearly 55 expired tax breaks. The tax extenders bill—which was approved last month by voice vote in the Senate Finance Committee—would renew for two years almost all of the tax breaks that expired on Dec. 31, 2013—including several business extenders such as—section 179 expensing and the research tax credit.

Majority Leader Harry Reid (D-Nev.) is planning to fill the amendment tree for the bill in order to prevent Republicans from attaching a medical device tax repeal that was put in place by the Patient Protection and Affordable Care Act in 2010. Preventing amendments may make it difficult for the bill to obtain the 60 votes needed for passage.

Another factor that makes passage uncertain is that the Senate’s $85 billion extenders package is not paid for. Some Democrats are insisting the tax breaks do not need to be offset because they’ll pay for themselves and some Republicans oppose the package on the grounds that they add to the deficit in the same way new government spending would.

Senate pay-as-you-go, (PAYGO) rules require an offset for any new or expanded policies that increase spending or lower tax revenue. When tax provisions are extended before they expire — often in the rush of a lame-duck session of Congress — they do not run afoul of PAYGO. But the 55 tax breaks that expired on Dec. 31 are no longer current law, so reinstating them would violate PAYGO rules, unless they can get the 60 votes necessary to go around PAYGO.

Meanwhile, the House passed a $156 billion permanent extension of the research and experimentation tax credit (H.R. 4438) with the help of Democrats last week after rescheduling the vote several times. Sixty-two Democrats joined Republicans to pass the measure, 274-131, even though the White House threatened to veto the bill because there was no offset.

Next, the House is likely to tackle two tax incentive bills for small business. The first, introduced by Rep. Pat Tiberi (R-Ohio) would permanently extend the $500,000 cap on small-business expensing (HR 4457). Specifically, the America’s Small Business Tax Relief Act of 2014 would retroactively and permanently extend from Jan. 1, 2014, increased limitations on the amount of investment that can be immediately deducted from taxable income. H.R. 4457 also indexes the limitations for inflation and expands the definition of property that qualifies for that immediate deduction.

Finally, the House may move on Rep. Dave Reichert’s (R-Wash.) $1.5 billion proposal (H.R. 4453) to make permanent the shorter five-year recognition period for built-in gains taxes on some S corporations. The measure would extend a tax break from the fiscal cliff deal that allows owners of some S corporations to avoid a 35 percent corporate built-in gains tax on gains from asset sales if they hold the assets for more than five years after electing to convert from C corporation tax status. Both of these measures have previously passed out of the House Ways and Means Committee.