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One Month Remains to Renew Tax Extenders

2 min readBy: Alan Cole

Every year, a hodgepodge of 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 expires unless Congress chooses to renew them. They are often called "extenders" by tax policy specialists because Congress repeatedly extends their lifespan, without either letting them expire or making them permanent. The way the process frequently plays out—including last year—is for Congress to wait for months and months before offering a brief extension.

The current status of the extenders is that they have been expired since January 1st of this year. However, tax filing season for 2015 doesn’t really start until the calendar year 2016, so Congress still has time to offer the expected extension.

Needless to say, the idea of implementing tax provisions retroactively like this is poor public policy; for tax policies designed to incentivize good behavior, the incentives can be weakened by an environment clouded with uncertainty.

Fortunately, this year, more than most years, there appears to be a significant chance of making extenders permanent. While not all extenders necessarily deserve that status, this seems like the most decent solution; it has been hard for Congress to separate them from each other, and 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. —the best extender—is one of the best provisions out there, scored by both Tax Foundation and the Joint Committee on Taxation as boosting economic growth.

Some other provisions may become involved in the deal to make extenders permanent. Particularly, the deal might include a delay of the Cadillac TaxThe Cadillac Tax is a 40 percent tax on employer-sponsored health care coverage that exceeds a certain value. The aim: to curb health-care cost growth, reduce favorable tax treatment of employer-provided insurance, and help fund the Affordable Care Act (ACA). It was repealed in late 2019 before taking effect. and the Medical Device Tax, two of the most often-attacked parts of the Affordable Care Act. It may also include extension of an expanded Earned Income Credit and Child 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. , included in the “fiscal cliff” deal and set to expire in 2018.

Congress should be mindful of the total deficit impact of the bill it puts forward, but permanent tax policy is far better than temporary tax policy; on net, a deal to make the extenders permanent is likely to be worth the trouble.