April 16, 2014
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EXPIRING PROVISIONS AND TAX REFORM: Tax is another big piece of the fiscal puzzle this fall. Numerous broadly supported tax provisions are expiring in 2013 including: the deduction for state and local taxes, the R&D tax credit; the work opportunity tax credit; enhanced expensing for small businesses; the renewable energy production tax credit; and the tax deduction for energy-efficient commercial buildings. CRS Report detailing expiring provisions.

Tax Reform.--Chairman Camp at the House Ways & Means Committee and Chairman Baucus at Senate Finance have both clearly stated their intentions to mark-up major tax reform legislation this fall aimed at simplifying the code and lowering tax rates using revenues from eliminating numerous tax deductions and credits.

While there is broad agreement on reducing the corporate income tax rate from 35% to somewhere in the range of 25 to 28 percent (to bring it more in line with other OECD countries), there is strong disagreement between Democrats and Republicans on several key issues:

  • Republicans favor tax reform legislation that is revenue-neutral, while Democrats generally favor a tax bill that raises revenue in order to replace the sequester. This disagreement was highlighted on August 1st when Senate Majority Leader Harry Reid said he is "totally supportive of tax reform" but only if it raises "significant revenues," while Minority Leader Mitch McConnell told reporters the desire to raise revenues would be "a real stumbling block here in terms of moving forward." (reported by Bloomberg BNA).

  • The Administration on July 30 proposed using revenues garnered from corporate tax reform to fund jobs stimulus programs (highway construction, community college training, etc.), but that met strong opposition from congressional Republicans.

  • There is disagreement on whether tax reform should focus initially on corporate taxes or should more broadly reform individual and corporate taxes (particularly because pass-through businesses are subject to individual tax rates).



NEWS and KEY PUBLICATIONS

November 18 - 21, 2013: Senate Financ Committee releases discussion drafts on reform of business taxes:

Baucus Proposal on Cost Recovery, Tax Accounting   JCT Technical Explanation

Baucus Proposal on Tax Administration       JCT Technical Explanation

Baucus Proposals for International Tax Reform          JCT Technical Explanation

November 13, 2013: The nonpartisan Congressional Budget Office (CBO) released their updated deficit reduction options book laying out 103 ways Congress and the Administration could cut spending or raise revenues to reduce projected deficits.

August 21, 2013: With impending mark-ups this fall of tax reform legislation, the Committee for a Responsible Federal Budget has begun a series analyzing the $1.3 trillion of tax expenditures (credits, deductions, exclusions and other preferences). Link here.

July 31, 2013: House Ways & Means Chairman Camp announces plans to markup a tax reform bill in October, reports Politico.

Joint Committee on Taxation study estimates that eliminating the AMT and reducing top individual and corporate income tax rates to 25 percent, as proposed in the House-passed budget resolution, would cut revenues and increase defcits by $5 trillion unless offset by eliminating deductions, credits and other tax preferences. Link to estimates on individual rates. Link to estimates on corporate rates.

July 30, 2013: Obama’s plan to link corporate tax reform, jobs spending quickly rejected by GOP. White House fact sheet.

July 25, 2013: As reported by Bloomberg/BNA, Senate Majority Leader Reid says that legislation to rewrite the tax code should raise at least $975 billion in revenue.

June 27, 2013: Tax provisions expiring in 2013 include: the deduction for state and local taxes, the R&D tax credit; the work opportunity tax credit; enhanced expensing for small businesses; the renewable energy production tax credit; and the tax deduction for energy-efficient commercial buildings. CRS Report detailing expiring provisions.

May 6, 2013: JCT report to the House Ways & Means Committee on reform proposals submitted to its tax reform working groups.

March 2013: GAO report on corporate tax expenditures

February 25, 2013: JCT: General Explanation of Tax Legislation Enacted in the 112th Congress

February 13, 2013: Ways & Means Committee announces tax reform working groups

February 12, 2013: In State of the Union address, President Obama endorses tax reform as part of deficit reduction.

February 1, 2013: JCT releases estimates of Federal Tax Expenditures

January 14, 2013: Updated IRS tax tables for 2013

January 11, 2013: JCT releases list of expiring tax provisions

January 10, 2013: Tax Provisions in the American Taxpayer Relief Act of 2012 (Tax Policy Center)

January 8, 2013: Overiew of federal taxes as amended by the Jan. 2013 fiscal cliff legislation

September 11, 2012: Senate Finance Committee releases updated summary of tax extenders bill.

August 22, 2012: CBO releases updated revenue projections

August 14, 2012: "Section 179 and Bonus Depreciation"

August 14, 2012: "Research Tax Credit: Current Law and Policy Issues"

August 10, 2012: Washington Post, "Tax Reform is Going to be Really, Really Hard"

August 2, 2012: House passes HR 6169, a bill to establish an expedited procedure for consideration of tax reform in 2013. To qualify for the expedited process, legislation would have to reduce tax brackets down to two; reduce the corporate rate to at least 20 percent; repeal the AMT; maintain revenues at 18 or 19% of GDP; and move to a territorial tax system. However, the expedited procedures would provide fewer protections than a filibuster-proof budget reconciliation measure. The Senate will not consider the House-passed bill.

August 2, 2012: Senate Finance Committee approves a two-year AMT (Alternative Minimum Tax) patch and tax extenders package (R&E tax credit, deduction for state sales taxes and other expiring provisions.). However, the measure fails to address the fiscal cliff (major tax hikes in early January 2013 when the Bush tax cuts expire). The package costs $205 billion over 10 years, the bulk of which is from the AMT patch. Outlook: Senate could vote on the package in September, but the House has not scheduled action on extenders and, as reported by Congressional Quarterly, may wait until consideration of the larger tax issues after the election.
Documents related to the tax extenders bill JCT Revenue Estimates
CRS Summary of Tax Provisions Expiring in 2012 including the expiring "Bush tax cuts"

August 1, 2012: Nonpartisan Tax Policy Center, Paper on Base-Broadening Income Tax Reform

August 1, 2012: House passes a one-year extension of Bush tax cuts after rejecting a Democratic proposal to let the cuts expire for individuals earning up to $200k and joint filers earning up to $250k. (The Senate rejected the House approach the previous week.) Summary of the House-passed bill

July 25, 2012: Senate passes legislation (S. 3412) to extend for one year the Bush tax cuts on income up to $200k for individuals and $250k for joint filers, after defeating a Republican alternative to extend the cuts for all income levels. (The House later rejected the Senate approach on August 1.) Statement of Administration Policy on Senate bill

July 30, 2012: Comparison of bills to Extend the Bush Tax Cuts

July 25, 2012: "Moving to a Territorial Income Tax: Options and Challenges"

July 18, 2012: "The 2001 and 2003 Bush Tax Cuts and Deficit Reduction" The report estimates that extendng the Bush tax cuts for single filers over $200k and joint filers over $250k would cost $34 billion in 2013 and $931 billion over 10 years (2013-22).

May 31, 2012: "Tax Reform: An Overview of Proposals in the 112th Congress"

April 17, 2012: "Tax Provisions Expiring in 2012"

March 28, 2012: "Energy Tax Policy Issues in the 112th Congress"

March 22, 2012: "The Challenge of Individual Income Tax Reform: An Economic Analysis of Tax Base Broadening"

December 16, 2011: "Corporate Tax Reform: Issues for Congress"

July 13, 2011: Tax Policy Options for Deficit Reduction

November 10, 2009: "Economic Stimulus: Issues and Policies" analyzing the impact of tax cuts on the economy.