Congress Should Put Tax Extenders to Rest

November 9, 2018

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

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