Tax Incentive Extenders Update

Republican leaders continue to pursue a deal to extend tax breaks without cutting spending to make up for the loss of revenue. Senate Finance Chairman Orrin Hatch, R-Utah, said he was optimistic that Congress could reach agreement on a package of tax breaks that could cost more than $500 billion over 10 years without offsetting spending cuts.

At a minimum, Hatch said, he would press for the Senate’s two-year extension package (S 1946) that would cost $96 billion – that would be a retroactive extension of lapsed tax incentives and an extension of them through 2016. House Majority Leader Kevin McCarthy, R-Calif., said he would not insist on revenue-raising offsets to cover the cost of extending tax breaks because permanent tax cuts would spur economic growth. Partisan disputes over business tax write-offs and revenue raisers in the health care overhaul could prove to be hurdles to a year-end deal.

Hurdles include Democratic demands to boost tax credits for low-income households and on the potential cost of the package. Democratic members and the White House want to include indexing certain family-oriented tax credits for inflation. The White House has said an enhanced Earned Income Tax Credit (EITC) is key to its support. If an extenders measure extends or makes permanent tax credits such as the EITC and the Child Tax Credit, Republican lawmakers say they aim to include provisions to prevent fraudulent claims.

Republicans have signaled they could accept permanent extensions of the two Obama administration priorities: the expanded Earned Income Tax Credit and the Additional Child Tax Credit, both of which expire in 2017. But they are balking at further expansions, such as indexing the Additional Child Tax Credit, which is a refundable version of the benefit for families who do not have enough income to receive the full Child Tax Credit.

The Republicans are pressing for a package of business tax preferences such as permanent extensions of the research and experimentation tax credit and the $500,000 cap for small business expensing under Section 179 of the tax code. While a biodiesel tax incentive is part of the extenders, there is no push to make it permanent.

Any tax extender deal would likely ride on legislation keeping the government running into 2016. Timing remains tight if Congress abides by a self-imposed deadline of Dec. 18 to finish business for the year. Ways and Means Republicans reportedly have a deadline of Dec. 7 to strike an extenders agreement.