Lawmakers debate temporary tax provisions, with eye on reform

February 1, 2012

The Hill

By Bernie Becker

Members of the Senate Finance Committee on Tuesday said extending tax provisions that expired at the end of 2011 could help spark the economy and give businesses more certainty.

But in the process, the lawmakers appeared to further underscore the challenges of a comprehensive overhaul of the tax code, suggesting that some of those provisions would also need to be examined in a reform package that exchanges tax breaks for lower rates.

“When we start talking about tax reform, everybody’s for it until they figure out how it actually impacts them,” Sen. John Thune (R-S.D.) said at a Finance Committee hearing focused on the roughly 60 tax incentives that expired at year’s end.

Sen. Max Baucus, the panel’s chairman, also said that businesses in all sorts of sectors were hamstrung by the “stop-and-start nature” of the current system, in which expired preferences have often been put back into place months later.

The tax provisions that expired at the end of 2011, commonly known as tax extenders, includes well-known incentives for research and development and alternative energy.

But the Montana Democrat also wondered whether policymakers would have to eliminate some of the temporary provisions during a tax code revamp.

“This process will take time — time that our recovering economy doesn’t have,” Baucus said.

The hearing came as tax extenders are poised to play a large role in not only the tax reform discussion, but also the negotiations over a year-long extension of the payroll tax cut.

Some top Democrats, believing they have an advantage in those talks after Republicans caved on the payroll tax cut in December, have been pushing to add some of the tax extenders to any longer-term deal. 

At Tuesday’s hearing, Sens. Charles Schumer (D-N.Y.) and Ben Cardin (D-Md.), a member of the conference committee charged with reaching a payroll tax deal, essentially made the case for bringing back a tax credit for commuters using mass transit.

“This is the one that’s hardest to go back and do retroactively,” said Schumer, a top party messenger, who also noted that there’s a permanent incentive for parking costs.

Payroll tax conferees, who are also looking to reach an agreement on federal unemployment benefits and the Medicare reimbursement rate for doctors, are scheduled to meet again on Wednesday, four weeks before their deadline.

Witnesses at Tuesday’s hearing were not on the same page on whether to extend the expired provisions, though everyone agreed that the tax code needed to be revamped from top to bottom.

“The fact that we are here today talking about 59 provisions that expired last year alone is an indication,” said Jason Fichtner, a senior research fellow at the Mercatus Center at George Mason University.

As for the tax extenders, Caroline Harris of the U.S. Chamber of Commerce called on lawmakers to renew all of the incentives, saying the provisions help boost a fragile economy.

But Rosanne Altshuler, a Rutgers professor, said many of the tax breaks had lost their economic punch, and instead suggested that letting them expire could add momentum to the push for tax reform.

The problem is, many interested parties are doubtful that tax reform can be completed in this election year, even after congressional tax-writing committees laid considerable groundwork for an overhaul in 2011.

In the wake of President Obama’s State of the Union address last week, top Democrats signaled that they were following a new tax reform strategy that would include a stronger push for tax fairness and economic equality.

“It’s all just very depressing. I was depressed about the tax code before coming to this hearing,” Altshuler said. “And in preparing for this hearing, and looking at all the temporary tax provisions that we have, I got even more depressed. Because I thought, this is impossible.”

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