House Republicans are preparing for an inevitable showdown over temporary tax breaks known as “extenders.”
The House is set to vote Thursday and Friday on two legislative packages that would make permanent expired temporary tax breaks for charitable contributions and deductions for investments made by small businesses. Those measures would cost the Treasury $2.2 billion and $79 billion, respectively, over the next 10 years.
By making the breaks permanent, House Ways and Means Chairman Paul Ryan and House Republicans are repeating an exercise conducted by former chairman Dave Camp of Michigan last year, which was abandoned in a last-minute deal between Republicans and Democrats in December that left no one happy. Then, the House and Senate passed a $42 billion bill to extend 50-plus tax breaks that expired at the end of 2013 for just two weeks, through the end of 2014.
On Jan. 1 the tax provisions all expired again, leaving Congress to determine whether to repeat the process, make the provisions permanent, or aim for overall tax reform.
For now, the House is aiming to make them permanent.
“Why do we have to play this game of wait until the deadline in order to pass these things?” asked Rep. Tom Reed, R-N.Y., the sponsor of the package of breaks for charitable giving. “Let’s just do it, and get it done permanently.”
That strategy, however, is at odds with the professed goal of the Obama administration, Ryan and Senate Finance Committee Chairman Orrin Hatch, R-Utah, of achieving comprehensive tax reform. A broader overhaul of the tax code would eliminate breaks and deductions to lower tax rates.
Nevertheless, Reed said passing a permanent version of the breaks now “helps us overall to advance the cause of tax reform, and I think it can be indicative of us moving the ball to the finish line on overall tax reform.”
Last year, Ryan supported making many of the biggest extenders permanent on the grounds that doing so would significantly lower the baseline amount of revenue brought in by the federal government.
That would mean that lowering the tax rate as part of a broader deficit-neutral tax reform would require ending fewer breaks and deductions to make up the difference.
The plan to make the extenders permanent fell through, however, as the White House, the GOP-controlled House and the Democrat-led Senate could not come to an agreement as the year came to a close.
This time, the House is starting the effort early, even as the key players in the Obama administration and the Republican Senate continue to talk up the possibility of reforming the corporate side of the tax code.
The White House on Tuesday issued veto threats for both legislative packages, which are expected to clear the House this week with bipartisan majorities.
“If this same, unprecedented approach of making certain traditional tax extenders permanent without offsets were followed for the other traditional tax extenders, it would add $500 billion or more to deficits over the next 10 years,” the Office of Management and Budget warned.
The OMB also accused Republicans of maintaining a “double standard” by voting for permanent tax breaks for businesses and philanthropic donors that would add to the deficit, while opposing the extension of tax breaks for low-income families favored by the Obama administration.
The White House voiced similar objections to a Senate-negotiated deal involving several major and popular extenders late last year.
