Deadline looms for Congress to extend popular tax breaks
Washington – Unless Congress acts soon, Connecticut commuters, students, homeowners and businesses will lose a number of valuable tax credits and deductions.
These credits and deductions, known as “extenders,” aren’t a permanent part of the tax code and must be renewed by Congress from time to time. Collectively, they are worth an estimated $94 billion over two years.
About 55 extenders, including the deduction for mortgage premiums, the tuition tax credit and the tax break commuters receive on mass transit and parking expenses, expire on Dec. 31 because Congress could not agree on a way to renew them.
Republicans want to pare down the list and make some extenders permanent. Democrats want to renew them all.
Other extenders whose fates are uncertain include one that would make charitable contributions from an IRA tax deductible, and another that would offer a credit for the purchase of an energy-efficient appliance or electric motorcycle.
There’s also a $250 tax deduction for teachers and other school professionals for expenses incurred from the purchases of books and other supplies that’s about to expire. Homeowners who benefited from mortgage debt cancellation or forgiveness may be required to consider that amount as taxable income unless the exclusion for that is renewed by Congress.
Connecticut businesses also benefit from the renewal of some of the extenders. They include a research and development tax credit used by the state’s defense contractors and pharmaceutical companies, a tax break for producers of renewable energy, and builders of low-income housing. There are also provisions for accelerated depreciation of capital improvements for retailers, restaurant owners and motorsports track owners. The latter is also known as the NASCAR tax break.
A report by Americans for Tax Fairness and Public Campaign released earlier this year shows how important the extenders are to Connecticut businesses. It said Fairfield-based GE has deployed 48 lobbyists to urge Congress to renew a tax break called the Active Financing Exception, or AFE. The provision enables multinational corporations like GE to avoid paying federal income taxes on financial income that is generated offshore.
United Technologies Corp. Chief Executive Officer Louis Chenevert told investors that the elimination of the research and development tax credit would reduce the company’s earnings per share by 10 cents. And Pfizer’s facility in Groton spent more than $6 billion on R&D last year.
The pharmaceutical firm has joined UTC, General Dynamics (Electric Boat’s parent company) and other Connecticut companies in a group formed by the National Association of Manufacturers known as the R&D Credit Coalition. Its mission is to protect the R&D tax credit and make it permanent.
Earlier this summer, the House passed bills that would make the IRA charitable contribution and several other extenders permanent. The White House threatened to veto those bills because no tax revenue was provided to pay for the extensions.
The price tag
The R&D tax break is among the most costly, with a price tag of about $4 billion a year. The Congressional Budget Office says renewing all extenders over two years will cost about $94 billion.
Under pressure from constituents, there are signs both Republicans and Democrats may come up with a deal – and it probably won’t require that the extenders are paid for and will add to the deficit.
Sen. Mitch McConnell, R-Ky., who will be the next Senate Majority Leader, said he thinks both sides can come together on an extender package.
Sen. Ron Wyden, D-Or., said he’s willing to make some extenders permanent, especially the R&D tax credit, to win the support of the GOP.
Rep. John Larson, D-1st District, a member of the tax-writing Ways and Means Committee, said House Republicans may agree to make the R&D tax credit permanent and extend the others for two years.
“It’s a common sense way to move the agenda forward,” Larson said. “If they got the plum (the R&D tax credit), this could be a feather in their cap.”
But Republicans are also getting pressure from influential conservative groups to capitalize on their election victory by killing off some of the tax extenders they don’t like, such as the wind-production tax credit that is seen as part of the Obama administration’s environmental agenda.
Conservatives may insist House Speaker John Boehner, R-Ohio, hold up any action on the extenders until the next Congress, when the GOP will expand its majority in the House and take control of the Senate.
Meanwhile liberal groups want some of the business tax breaks eliminated.
“Lawmakers are willing to increase the deficit in order to hand out tax subsidies like the tax extenders to corporations and other businesses, even while they insist that any benefits for working families or the unemployed must be somehow paid for in order to avoid an increase in the deficit,” says Citizens for Tax Justice.
IRS Commissioner John Koskinen doesn’t want Congress to wait until the last minute to act.
He warned lawmakers they must act before December to avoid complicating the tax-filing season and delaying refunds.
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