Senate Hearing Will Examine Tax Extenders Fix

January 31, 2012

Accounting Today

By Michael Cohn

The Senate Finance Committee plans to hold a hearing Tuesday to discuss finding a long-term way to handle “tax extenders”—tax provisions that frequently require annual or biannual renewals—to provide more certainty for taxpayers, not to mention tax preparers.

There are more than 50 tax extenders in the Tax Code, and the frequent threat of expiration causes uncertainty among taxpaying businesses, families and individuals. Among them are the research and development credit, deductions for state and local taxes, and the ability of teachers to deduct out-of-pocket expenses for their classrooms.

Congress needs to renew the provisions every year or two, and find a way to pay for them, usually through new taxes, spending cuts, increased enforcement measures, or larger penalties or fees.

Tax extenders also narrow the tax base, the committee noted, necessitating higher tax rates. In addition, the yearly process required to pass each extender package consumes much of the legislative calendar.

At Tuesday’s hearing, Senate Finance Committee Chairman Max Baucus, D-Mont., ranking Republican member Orrin Hatch, R-Utah, and the witnesses will discuss how best to approach tax extenders in order to create certainty and allow businesses to invest confidently and create jobs.

Witnesses scheduled to testify include Rutgers University economics department chair Rosanne Altshuler, George Mason University senior research fellow Jason J. Fichtner, University of Texas law professor Calvin H. Johnson, and U.S Chamber of Commerce chief tax counsel Caroline L. Harris.

Lawmakers and legislators will also evaluate tax extenders through the lens of tax reform, evaluating what role tax extenders should play in a reform process aimed at broadening the tax base, lowering tax rates and making the Tax Code fairer, simpler and more efficient.

Separately, a joint conference committee of Congress has been meeting to discuss extending the payroll tax cut through the end of the year. Last month, the Obama administration and congressional leaders were only able to agree on a two-month extension through the end of February (see Congress Passes 2-Month Payroll Tax Cut). The tax cut of 2 percentage points in Medicare and Social Security withholding taxes was paired with a two-month extension of unemployment benefits and the so-called “doc fix” to prevent Medicare reimbursements to physicians from plummeting.

Baucus and Senate Majority Leader Harry Reid, D-Nev., reportedly want the conferees who are working on the payroll tax cut extension to also consider the larger package of tax extenders in their deliberations, according to Roll Call, but House Ways and Means Committee Chairman Dave Camp, R-Mich., prefers to confine the negotiations to extension of the payroll tax cut.

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