Congress is considering a two-year budget deal that would, among other things, change the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code for 2017. Since the close of 2016, the fate of several expired tax “extenders”—a slew of temporary, constantly expiring tax breaks for individuals and businesses—has been up in the air. Unfortunately, the 2017 tax reform effort did not include a review of these expired provisions, and lawmakers are now pursuing retroactive extension of 32 expired tax breaks.
For more than a decade, Congress has scrambled at the last minute to enact short-term extensions of dozens of expiring tax breaks every other December. This pattern was interrupted in 2015 when Congress passed several of the most important extenders—including Section 179 expansion and the R&D credit—into permanent law. After these became permanent, there was less pressure to renew the remaining extenders, and as a result 36 minor tax provisions were allowed to expire from the tax code at the close of 2016.
But now, in the second month of 2018, Congress is revisiting the issue to extend back in time incentives for renewable energy, tax breaks for homeowners, and several miscellaneous provisions for businesses.
Retroactive changes like this are poor public policy and should not be expected to contribute to long run economic growth. Further, this is not a productive way to build on a tax reform bill designed to improve the tax code. Businesses and individuals have already made their decisions for 2017 and cannot go back and choose to invest differently in light of the new tax breaks—and counting on regular tax break extensions when planning ahead is no longer a sure bet. The uncertainty surrounding tax extenders is one of the most persistent features of tax policy discussions, and that should change.
One feature of this budget deal, however, may indicate that lawmakers have a willingness to further scrutinize tax extenders. The deal would reinstate these 32 provisions for one year, only through 2017, leaving their fate for the current year unknown. This gives Congress an opportunity to evaluate each extender on its own merits to determine whether it should become part of the permanent tax code or whether it should be allowed to expire for good. Hopefully, Congress revisits the issue in 2018, determining which provisions should become permanent and which should expire.
| Provisions | Extended through |
|---|---|
|
Renewable Energy Provisions |
|
|
Extension of credit for nonbusiness energy property. |
2017 |
|
Extension and modification of credit for residential energy property. |
2022, subject to rate reductions in later years |
|
Extension of credit for new qualified fuel cell motor vehicles. |
2017 |
|
Extension of credit for alternative fuel vehicle refueling property. |
2017 |
|
Extension of credit for 2-wheeled plug-in electric vehicles. |
2017 |
|
Extension of second generation biofuel producer credit. |
2017 |
|
Extension of biodiesel and renewable diesel incentives. |
2017 |
|
Extension of production credit for Indian coal facilities. |
2017 |
|
Extension of credits with respect to facilities producing energy from certain renewable resources. |
2017 |
|
Extension of credit for energy-efficient new homes. |
2017 |
|
Extension and phaseout of energy credit. |
Makes expiration date and phaseout schedule consistent across properties with different sources of energy. Phases out through 2022. |
|
Extension of special allowance for second generation biofuel plant property. |
2017 |
|
Extension of energy efficient commercial buildings deduction. |
2017 |
|
Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities. |
2017 |
|
Extension of excise tax credits relating to alternative fuels. |
2017 |
|
Extension of Oil Spill Liability Trust Fund financing rate. |
Reinstated on the first day of the first calendar month following enactment of the bill. |
|
Modifications of credit for production from advanced nuclear power facilities. |
Allows Treasury Secretary to reallocate unused capacity after January 1, 2021. |
|
Individual Provisions |
|
|
Extension of exclusion from gross income of discharge of qualified principal residence indebtedness. |
2017 |
|
Extension of mortgage insurance premiums treated as qualified residence interest. |
2017 |
|
Extension of above-the-line deduction for qualified tuition and related expenses. |
2017 |
Miscellaneous Provisions |
|
Extension of Indian employment tax credit. |
2017 |
|
Extension of railroad track maintenance credit. |
2017 |
|
Extension of mine rescue team training credit. |
2017 |
|
Extension of classification of certain race horses as 3-year property. |
2017 |
|
Extension of 7-year recovery period for motorsports entertainment complexes. |
2017 |
|
Extension of accelerated depreciation for business property on an Indian reservation. |
2017 |
|
Extension of election to expense mine safety equipment. |
2017 |
|
Extension of special expensing rules for certain productions. |
2017 |
|
Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. |
2017 |
|
Extension of special rule relating to qualified timber gain. |
2017 |
|
Extension of empowerment zone tax incentives. |
2017 |
|
Extension of American Samoa economic development credit. |
2017 |