Congress Should Put Tax Extenders to Rest November 9, 2018 Robert Bellafiore Robert Bellafiore House Ways and Means Committee Chairman Kevin Brady (R-TX) announced in September that “tax extenders,” a set of tax provisions that have been temporarily continued for more than a decade, will receive attention after the midterm elections. Now that the lame duck session of Congress begins, Congress must answer the question: which extenders should be extended and which should expire? Fortunately, my colleague Erica York has identified exactly which extenders fall into those categories. Congress should follow Erica’s guide and identify which extenders are no longer needed because of the Tax Cuts and Jobs Act (TCJA), which extenders are poor policy and should be allowed to expire, and which should be left up to Congress’ discretion. Some extenders are now redundant, following the TCJA. The TCJA allows for full expensing of capital investments for five years, phased out over time, for qualified property. Six extenders provide similar treatment to different types of property, and an additional provision overlaps with the TCJA’s treatment of Section 179 expensing. Given their redundancy, such extenders are no longer needed. Some extenders should simply be allowed be expire. Seventeen extenders favor specific industries, making the tax code less neutral. Narrow benefits for certain economic groups are never good policy, and Congress should remove those provisions that unfairly favor some businesses over others. Finally, two extenders could be reasonable policies, depending on congressional priorities. These extenders, for railroad track maintenance and mine rescue team training, should be left to congressional discretion. However, it would be better for them to be made permanent, rather than left as temporary provisions. As lawmakers consider ways to build on tax reform, they should subject extenders to a “rigorous test,” as Rep. Brady said earlier this year. Instead of performing the ritual of prolonging temporary provisions, Congress should decide which provisions, if any, are good policy and deserve to be made permanent, and which should be allowed to expire once and for all. Table 1: Provisions That Are No Longer Needed Because of the TCJA Source: Joint Committee on Taxation Provision Description 10-Year Cost ($ millions) Cost Recovery Racehorses Three-year write-off period for racehorses two years or younger. 142 Motorsports entertainment complexes Seven-year write-off period for motorsports entertainment complexes, including ancillary and support facilities and land improvements. 504 Accelerated depreciation for business property on an Indian reservation Shorter depreciation schedules for certain property used to conduct business within an Indian reservation. For example, 10-year property receives a recovery period of six years under this provision. 1,441 Mine safety equipment This provision allows a taxpayer a 50 percent deduction of the cost of any qualified mine safety equipment in the year it is placed in service. 27 Certain film, television, and live theatrical productions Full expensing (up to $15 million, or $20 million for certain areas) for qualified film, television, or live theatrical production costs. 433 Second-generation biofuel plant property allowance Allows a 50 percent deduction of the adjusted basis in the first year of in-service second-generation biofuel plants. 124 Energy-efficient commercial buildings deduction Provides a tax deduction of up to $1.80 per square foot of a building for the cost of energy-efficient property such as energy-efficient windows or HVAC systems. 719 Table 2: Provisions That Should Be Allowed to Expire Source: Joint Committee on Taxation Provision Description 10-Year Cost ($ millions) Energy Efficiency and Renewables New energy-efficient homes Credit to the contractor or manufacturer of $1,000 or $2,000 per certified energy-efficient new home. 3,020 Certain nonbusiness energy property Credit for 10 percent of expenditures on energy-efficient home improvements, up to $500 5,398 Electricity produced from renewable sources (excluding wind) Production tax credit of 1.2 or 2.4 cents per kWh for power produced, depending on type of facility, during the 10-year period after being placed in service. 1,118 Biofuels and Alternative Fuels Qualified fuel cell motor vehicles Credit of $4,000 up to $40,000, depending on weight, for fuel cell vehicles. 72 Alternative fuel vehicle refueling property 30 percent credit for property that dispenses alternative fuels such as ethanol, up to $30,000 for businesses and $1,000 for individuals. 332 Two-wheeled plug-in electric vehicles 10-percent credit of the cost of battery-powered vehicles that have only two wheels, up to $2,500. 12 Second-generation biofuels (formerly cellulosic biofuel producers) Credit of up to $1.01 per gallon for qualified second-generation biofuel sold per year. 306 Biodiesel and renewable diesel Excise tax or income tax credit of up to $1.00 per gallon of biodiesel mixture, biodiesel, and renewable diesel. Small producer credit of 10 cents per gallon for up to 15 million gallons of agri-biodiesel. 35,186 Alternative fuel and alternative fuel mixtures Excise tax credit of 50 cents per gallon for alternative fuel and alternative fuel mixtures. 7,109 Conventional Energy Indian coal Production tax credit of $2 per ton for coal produced from reserves owned by an Indian tribe. 332 Special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy Allows electric utilities the option to recognize gains from transmission property sales over an eight-year period if the gains are used to purchase exempt utility property. 10 Other Business Provisions Indian employment tax credit 20 percent credit of up to $20,000 for qualified wages and employee health insurance costs. 603 American Samoa economic development Credit against corporate income taxes based on business activity in American Samoa. 96 Empowerment zone tax incentives Tax-exempt bond financing, 20 percent wage credit, accelerated depreciation, and capital gains deferral in designated areas. 2,296 Individual Provisions Discharge of indebtedness on principal residence excluded from gross income of individuals Exclusion from gross income of up to $2 million (for married households) for discharge of indebtedness on a qualified principal residence. 22,972 Mortgage insurance premiums Allows mortgage insurance premiums paid in connection with a principal residence or a second home to be deductible with mortgage interest. 6,490 Tuition and fees Deduction for college tuition and other related expenses, up to $4,000 per year, subject to income limitations. 1,689 Table 3: Provisions Up to Discretion Provision Description 10-Year Cost ($ millions) Source: “Federal Tax Provisions Expired in 2017,” Joint Committee on Taxation Railroad track maintenance credit 50 percent credit for qualified track maintenance expenditures of regional and short line railroads, up to $3,500 per mile of railroad track owned. 2,066 Mine rescue team training 20 percent or up to $10,000 credit of the amount paid for mine rescue team employee training program costs. 19 Stay informed on the tax policies impacting you. 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