The House of Representatives voted Wednesday to temporarily extend $45 billion in deductions, moving to avoid a potential tax hike that could hit people ranging from schoolteachers, families of college students and taxpayers in states without an income tax to racehorse owners and NASCAR racetrack operators.
The House vote of 378-46 set the stage for a similar move in the Senate, likely next week.
At best, the action would be in force for just the rest of this tax year, as House lawmakers did not extend the same provisions for 2014. They expire at the end of this month, and the fight would play out anew early next year. Senate Finance Committee Chairman Ron Wyden, D-Ore., threw in the towel Wednesday night on his effort to push a two-year extension.
The chairman for the tax-writing House Ways and Means Committee suggested the short-term extension was necessary but not ideal. “Here we are at the end of 2014 retroactively putting in policies for the whole year,” said Rep. Dave Camp, R-Mich.
“The bill is hardly perfect but provides us with a sorely needed stopgap measure,” said Rep. Louise Slaughter, D-N.Y.
Wednesday’s vote to restore more than four dozen expired provisions sets the stage for a broader and potentially more complicated tax debate in 2015. Republicans will control both chambers of Congress and may discuss these soon-to-be-expired tax provisions as part of a broader revamp of the corporate tax code.
Absent agreement by Congress and the president, millions of Americans face tax increases when preparing their 2014 tax returns early next year. Some of the tax deductions that hang in the balance are:
– Itemized deductions for state and local general sales taxes paid by taxpayers in seven states where they don’t have local income taxes to deduct from their federal taxable income: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
– A $4,000 deduction of higher-education expenses for middle-income Americans.
– A $250 deduction for elementary and secondary schoolteachers for school supplies.
– A tax deduction for companies, farms and restaurants that donate food to charities.
– The three-year tax depreciation for racehorses.
– A tax write-off for the first $15 million spent on film and television production.
– The seven-year depreciation for land improvements and support facilities at motor-sports complexes.
Until the House and the Senate reach final accord, these tax provisions remain in play. But congressional leaders and staffers from both parties insisted that at minimum an extension covering 2014 would get done next week.
President Barack Obama signaled he would sign the temporary extensions.
“We are open to short-term extensions of these provisions,” Obama said Wednesday in a meeting with members of the Business Roundtable, a business group.
The president added he’d like to see some of those tax extensions codified in a broader comprehensive revamp of corporate taxes.
“There is definitely a deal to be done,” Obama said.
Bipartisan talks between the two chambers of Congress appeared to be moving toward a two-year deal before Thanksgiving. But the effort fell apart when Obama said he’d veto it because it would make permanent tax breaks sought by corporations while only temporarily extending similar provisions that benefit the working poor.
The president repeated that linkage Wednesday to business leaders, saying he wouldn’t agree to any deal that “blows up the deficit . . . or alternatively that you get tax shifting from businesses to middle-class and working families.”
Later in the day, the White House expanded on its decision to scuttle last week’s tax deal.
“What the American people want is . . . somebody that’s looking out for working people,” spokesman Josh Earnest said. “That’s why we weighed in so heavily on the original tax extenders proposal. And . . . it’s the criteria that we’ll use to evaluate both the budget, but also, you know, future tax proposals that may be coming from Congress.”
While the House action gave many taxpayers a tax-hike reprieve, some saw it as a missed opportunity.
“Congress should be pursuing comprehensive tax reform that would update the tax code, enhance competitiveness, grow the economy and reduce the deficit,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “The excuse that there is not enough time rings hollow given that this deadline has been well-known for years, and this exercise of ad hoc legislating has become an embarrassing and damaging standard practice.”
Others blamed Obama’s recent executive order on immigration, saying it minimized chances for any real tax action before the 2016 presidential elections.
“The ability to find common ground on contentious issues in the short term has been lost by the immigration action,” said Sen. Lindsey Graham, R-S.C. “I don’t see a big deal being done with President Obama. I just don’t see anything big where you reform entitlements and clean up the tax code. . . . So for the next two years it’s about incremental steps.”
That’s not what American companies want to hear. In the absence of lower corporate taxes, they want certainty, particularly over expiring provisions such as tax credits for research and the ability to more quickly deduct the costs of property and equipment.
“It helps encourage more investment this year, and it also helps level the playing field for the larger foreign tax” issue, said Chad Moutray, chief economist of the National Association of Manufacturers. “Hopefully as we move into next year, we’ll have a broader conversation.”