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House Passes One Year Renewal of Tax Extenders

5 min readBy: Andrew Lundeen, Kyle Pomerleau

On Wednesday of this week, the U.S. House of Representatives passed a $42 billion package that would extend the nearly 50 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. provisions in the “tax extenders” bill through the end of 2014.

The one year extension came following a veto threat from the president that halted talks between Senate Majority Leader Harry Reid (D-NV) and House Ways and Means Chairman Dave Camp (R-MI) on a $400 billion permanent extension of most of the tax provisions.

As we have written before, not all tax extenders are good policy. Only a handful of tax extenders should be permanent components of the tax code.

The provisions that should be extended on a permanent basis are the extenders that help make the tax code more neutral. These provisions primarily deal with business investment. Four provisions that clearly qualify as neutral tax policy are:

  • Section 179: In past years, Section 179 has allowed businesses to expense up to $500,000 in capital investment rather than depreciating them overtime. This moves the tax code closer to neutral treatment of capital investments.
  • Bonus DepreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. : Bonus DepreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. , or 50 percent expensing, allows businesses to deduct 50 percent of their costs in software and equipment, in the year the purchases are made. This helps mitigate the tax codes bias against capital investment by moving us closer to full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. . If done so on a permanent basis, it would also provide a boost to the economy.
  • Look-Through Treatment: Look-through treatment allows U.S. companies to move money between their foreign subsidiaries without triggering a U.S. tax liability. This is a necessary band aid for our current worldwide tax systemA worldwide tax system for corporations, as opposed to a territorial tax system, includes foreign-earned income in the domestic tax base. As part of the 2017 Tax Cuts and Jobs Act (TCJA), the United States shifted from worldwide taxation towards territorial taxation. . The complete fix would be a shift to a territorial tax systemA territorial tax system for corporations, as opposed to a worldwide tax system, excludes profits multinational companies earn in foreign countries from their domestic tax base. As part of the 2017 Tax Cuts and Jobs Act (TCJA), the United States shifted from worldwide taxation towards territorial taxation. .
  • Active Financing: Active financing also provides a slight fix for our uncompetitive international tax system. The provision extends deferral to banks and businesses that finance the foreign sale of their products, which grants these businesses the same treatment as other U.S. businesses. Again, a shift to territorial would eliminate the need for this provision.

Additionally, arguments could be made for other provisions, such as the research and development tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. and the state and local sales tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. .

It’s important that these four provisions become a permanent part of the tax code, though.

At the current time, that may not be politically feasible. In this case, the best solution may be a measure that extends all the provisions for 2014 at the least, and, ideally, through the end of 2015 or beyond. This would give Congress the opportunity to map out a permanent solution in 2015, while giving businesses some amount of stability for 2014 and 2015.

The full list of the extenders passed by the House for 2014 are in the table, below. Keep in mind that the revenue estimates are for the next decade.

List of Extenders Passed in the House on December 3, 2014


10-year revenue effect of 1 year extension (2015-2024, Millions of Dollars)

Individual Extenders

Above-the-line deduction for teacher classroom expenses


Discharge of indebtedness on principal residence excluded from gross income of individuals


Parity for exclusion from income for employer-
provided mass transit and parking benefits


Mortgage insurance premiums treated as qualified residence interest


Deduction for State and local general sales taxes


Contributions of capital gain real property made for conservation purposes


Above-the-line deduction for qualified tuition and related expenses


Tax-free distributions from IRAs to certain public
charities for individuals age 70-1/2 or older, not
to exceed $100,000 per taxpayer per year


Business Extenders

Research credit


Minimum LIHTC rate for non-Federally subsidized new buildings (9%)


Military housing allowance exclusion for determining area median gross income


Indian employment tax credit


New markets tax credit


Railroad track maintenance credit


Mine rescue team training credit


Employer wage credit for activated military reservists


Work opportunity tax credit


Qualified zone academy bonds


Classification of certain race horses as 3-year property


15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements


7-year recovery period for motorsports entertainment complexes


Accelerated depreciation for business property
on an Indian reservation


Bonus depreciation


Enhanced charitable deduction for contributions
of food inventory


Increased expensing limitations and treatment of
certain real property as section 179 property


Election to expense mine safety equipment


Special expensing rules for certain film and
television productions


Deduction allowable with respect to income
attributable to domestic production activities in
Puerto Rico


Modification of tax treatment of certain payments
under existing arrangements to controlling exempt


Treatment of certain dividends of RICs


Treatment of RICs as "qualified investment
entities" under section 897 (FIRPTA)


Exception under subpart F for active financing


Look-through treatment of payments between
related CFCs under foreign personal holding company
income rules


Exclusion of 100 percent of gain on certain
small business stock


Basis adjustment to stock of S corporations
making charitable contributions of property


Reduction in S corporation recognition period for
built-in gains tax


Empowerment zone tax incentives


Temporary increase in limit on cover over of rum
excise tax revenues (from $10.50 to $13.25 per proof
gallon) to Puerto Rico and the Virgin Islands


American Samoa economic development credit


Energy Tax Extenders

Credit for section 25C nonbusiness energy


Second generation biofuel producer credit


Incentives for biodiesel and renewable diesel


Credit for the production of Indian coal


Beginning-of-construction date for renewable
power facilities eligible to claim the electricity
production credit or investment credit in lieu of
the production credit


Credit for construction of energy-efficient new


Special allowance for second generation biofuel
plant property


Energy efficient commercial buildings deduction


Special rule for sales or dispositions to
implement Federal Energy Regulatory Commission
("FERC") or State electric restructuring policy for
qualified electric utilities


Excise tax credits relating to certain fuels


Alternative fuel vehicle refueling property



Automatic extension of amortization periods


Extension of shortfall funding method and
endangered and critical rules




Note: Details differ from total due to rounding.

Source: Joint Committee on Taxation