Senate ready to move on tax extenders package
Earlier this year, I wrote that the prospects for comprehensive U.S. tax reform in 2015 appeared to be between slim and none. It wasn’t because of lack of interest. In fact, there have been numerous studies and reports published about how the current tax system is hurting U.S. competitiveness – both at home and abroad.
But lacking the political will to tackle such far-reaching and potentially costly reforms, both parties seem to be settling on advancement of a two-year version of the so-called “tax extenders” package before year-end. As you may remember, lawmakers waited until mid-December of 2014 to retroactively extend more than 50 tax breaks that expired last year. Those same provisions expired in 2015.
“Everybody knows that doing it (passing tax extenders) in December is the wrong thing to do,” Sen. Chuck Grassley, R-Iowa, told me earlier this year. By waiting so late in the year, businesses lack the certainty and predictability they need to make future plans.
Last week, Senate Finance Committee Chairman Orrin Hatch, R-Utah, and Ranking Member Ron Wyden, D-Ore., announced that they plan to move ahead and mark up a tax extenders package this week.
Grassley is a member of the Senate Finance Committee and the Iowa Republican secured the inclusion of tax incentives for wind energy, biodiesel and cellulosic ethanol in the bipartisan tax extenders bill the Finance Committee will consider.
The inclusion of the wind energy provision was a particular victory for Grassley, as allies of non-renewable energy sources are highly critical of wind energy and work against the tax incentives. Grassley authored and won enactment of the first-ever wind energy production tax credit in 1992. The incentive was designed to give wind energy the ability to compete against coal-fired and nuclear energy and helped to launch the wind energy industry. He has worked to extend the credit ever since.
“The Finance Committee leaders deserve credit for getting an early start on extending tax provisions. The energy items not only help support jobs. They also support the renewable energy that consumers want for a cleaner environment and energy independence,” Grassley emphasized.
Here are a few of the other provisions included in the Senate Finance Committee package:
• Renewable production tax credit. Under the provision, taxpayers can claim a 2.3 cent per kilowatt hour tax credit for wind and other renewable electricity produced for a 10-year period from a facility that has commenced construction by the end of 2014 (the production tax credit). They can also elect to take a 30 percent investment tax credit instead of the production tax credit. The bill extends these credits through December 31, 2016.
• Cellulosic biofuels producer tax credit. Under the provision, facilities producing cellulosic biofuels can claim a $1.01 per gallon production tax credit on fuel produced before the end of 2014. The bill would extend this production tax credit for two additional years, for cellulosic biofuels produced through 2016.
• Incentives for biodiesel and renewable diesel. The bill extends for two years, through 2016, the $1.00 per gallon tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon. The bill also extends through 2016 the $1.00 per gallon tax credit for diesel fuel created from biomass.
• Above-the-line deduction for higher education expenses, mainly tuition. This is an above-the-line tax deduction for qualified higher education expenses. The maximum deduction was $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns). The bill extends the deduction to the end of 2016.
• Temporarily extend increase in the maximum amount and phase-out threshold under section 179 expensing for business purchases. For taxable years beginning in 2015 and thereafter, a taxpayer may immediately expense up to $25,000 of Section 179 property annually, with a dollar for dollar phase-out of the maximum deductible amount for purchases in excess of $200,000. This proposal would increase the maximum amount and phase-out threshold in 2015 and 2016 to the levels in effect in 2010 through 2014 ($500,000 and $2 million respectively). The proposal would also extend the definition of Section 179 property to include computer software and $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property for two years.
The higher $500,000 allowance would cost the government an estimated $3.36 billion in lost revenue over 10 years. The bill that would make the higher allowance permanent (HR 636) passed the House, 272-142, just shy of the two-thirds margin necessary to overcome a presidential veto. Democrats insisted that Republicans find a way to pay for making that and other tax breaks permanent.
• Bonus depreciation for equipment purchases. The bill extends 50 percent bonus depreciation to qualified property purchased and placed in service before January 1, 2017, (before January 1, 2018, for certain longer-lived and transportation assets). It also makes a conforming change to the percentage of completion rules for certain long term-contracts. Under the provision, a taxpayer has the option to forgo bonus depreciation in favor of accelerating corporate Alternative Minimum Tax (AMT) credits acquired in tax years prior to 2006. This provision would extend the election to accelerate AMT credits for two years, through 2016.
Other provisions in the Finance extension package that are important to agribusiness and food interests: an enhanced tax deduction for food companies that donate excess products, a package of increased contribution limits and a carry-forward period for contributions of land donated for conservation purposes.
The House has acted to make some of the tax provisions permanent, including the Section 179 allowance, but those bills are not expected to become law because of the steep cost. For example, the higher expensing allowance – if made permanent – would cost an estimated $3.36 billion in lost revenue over 10 years.
The bill that would make the higher allowance permanent (HR 636), passed the House, 272-142, just shy of the two-thirds margin necessary to overcome a presidential veto. Democrats insisted that Republicans find a way to “pay for” making that and other tax breaks permanent.
So even though Congress seems on target to pass tax extenders before year-end, there’s certainly no guarantee of what the final package will look like and whether or not President Obama will sign the measure.
Ways and Means Chairman Paul Ryan, has not announced plans for considering a temporary extension – similar to the Senate Finance Committee’s version. A spokesman said Ryan, R-Wis., continues to take the position that the tax provisions should be made permanent.
Editor’s Note: Agri-Pulse Senior Editor Philip Brasher contributed to this report.