- Days left

Congress Letting 55 Popular Tax Breaks Expire -- Again

Debt Showdown
AP/J. Scott Applewhite
By STEPHEN OHLEMACHER

WASHINGTON -- In an almost annual ritual, Congress is letting a package of 55 popular tax breaks expire at the end of the year, creating uncertainty -- once again -- for millions of individuals and businesses.

Lawmakers let these tax breaks lapse almost every year, even though they save businesses and individuals billions of dollars. And almost every year, Congress eventually renews them, retroactively, so taxpayers can claim them by the time they file their tax returns.

No harm, no foul, right? After all, taxpayers filing returns in the spring won't be hurt because the tax breaks were in effect for 2013. Taxpayers won't be hit until 2015, when they file tax returns for next year.

Not so far. Trade groups and tax experts complain that Congress is making it impossible for businesses and individuals to plan for the future. What if lawmakers don't renew the tax break you depend on? Or what if they change it and you're no longer eligible?

"It's a totally ridiculous way to run our tax system," said Rachelle Bernstein, vice president and tax counsel for the National Retail Federation. "It's impossible to plan when every year this happens, but yet business has gotten used to that."

Some of the tax breaks are big, including billions in credits for companies that invest in research and development, generous exemptions for financial institutions doing business overseas, and several breaks that let businesses write off capital investments faster.

Others are more obscure, the benefits targeted to film producers, race track owners, makers of electric motorcycles and teachers who buy classroom supplies with their own money.

There are tax rebates to Puerto Rico and the Virgin Islands from a tax on rum imported into the United States, and a credit for expenses related to railroad track maintenance.

A deduction for state and local sales taxes benefits people who live in the nine states without state income taxes. Smaller tax breaks benefit college students and commuters who use public transportation.

A series of tax breaks promote renewable energy, including a credit for power companies that produce electricity with windmills.

The annual practice of letting these tax breaks expire is a symptom a divided, dysfunctional Congress that struggles to pass routine legislation, said Rep. John Lewis of Georgia, a senior Democrat on the tax-writing House Ways and Means Committee.

"It's not fair, it's very hard, it's very difficult for a business person, a company, to plan, not just for the short term but to do long-term planning," Lewis said. "It's shameful."

With Congress on vacation until January, there is no chance the tax breaks will be renewed before they expire. And there is plenty of precedent for Congress to let them expire for months without addressing them. Most recently, they expired at the end of 2011, and Congress didn't renew them for the entire year, waiting until New Year's Day 2013 -- just in time for taxpayers to claim them on their 2012 returns.

But Congress only renewed the package though the end of 2013.

Why such a short extension? Washington accounting is partly to blame. The two-year extension Congress passed in January cost $76 billion in reduced revenue for the government, according to the nonpartisan Joint Committee on Taxation. Making those tax breaks permanent could add $400 billion or more to the deficit over the next decade.

With budget deficits already high, many in Congress are reluctant to vote for a bill that would add so much red ink. So, they do it slowly, one or two years at time.

"More cynically, some people say, if you just put it in for a year or two, then that keeps the lobbyists having to come back and wine-and-dine the congressmen to get it extended again, and maybe make some campaign contributions," said Mark Luscombe, principal tax analyst for CCH, a consulting firm based in Riverwoods, Ill.

This year, the package of tax breaks has been caught up in a debate about overhauling the entire tax code. The two top tax writers in Congress -- House Ways and Means Committee Chairman Dave Camp (R-Mich.), and Senate Finance Committee Chairman Max Baucus (D-Mont.) -- have been pushing to simplify the tax code by reducing tax breaks and using the additional revenue to lower overall tax rates.

But their efforts have yet to bear fruit, leaving both tax reform and the package of temporary breaks in limbo. When asked how businesses should prepare, given the uncertainty, Camp said, "They need to get on board with tax reform, that's what they need to do."

Further complicating the issue, President Barack Obama has nominated Baucus to become U.S. ambassador to China, meaning he will soon leave the Senate, if he is confirmed by his colleagues.

As the Senate wound down its 2013 session, Democratic leaders made a late push to extend many of the tax breaks by asking Republican colleagues to pass a package on the floor of the Senate without debate or amendments. Republicans objected, saying it wasn't a serious offer, and the effort failed.

So should taxpayers count on these breaks as they plan their budgets for 2014?

"The best thing I would say is, budget accordingly," said Jackie Perlman, principle tax research analyst at The Tax Institute at H&R Block. "As the saying goes, hope for the best but plan for the worst. Then if you get it, great, that's a nice perk. But don't count on it."

A Partial List of the Big Tax Breaks Expiring
  • A tax credit for research and development, benefiting a wide range of industries, including manufacturers, pharmaceutical makers and high tech companies. The tax break saved companies an estimated $6.2 billion in 2013.
  • An exemption that allows banks, insurance companies and other financial firms to shield foreign profits from being taxed by the U.S. The tax break is important to major multinational banks and financial firms, saving them an estimated $9.4 billion in 2013.
  • A tax break that allows profitable companies to write off large capital expenditures immediately -- rather than over time -- giving some companies huge tax shelters. The tax break, known as bonus depreciation, benefits automakers, utilities and heavy equipment makers. Tax break: $34 billion in 2013, though companies lose future savings because they would have already written off the cost of items.
  • A tax credit for producing renewable energy, including wind and solar, in plants built before the end of 2013. Tax break: $116 million in 2013, though the savings would grow over time, saving companies more than $12 billion over the next decade as the plants continue to produce energy.
  • A provision that allows restaurants and retail stores to more quickly write off the cost of improvements. Tax break: $277 million in 2013.
  • Increased tax rebates to Puerto Rico and the Virgin Islands from a tax on rum imported into the United States. The U.S. imposes a $13.50 per proof-gallon tax on imported rum, and sends most of the proceeds to the two U.S. territories. Cost: $199 million in 2013.
  • A 50 percent tax credit for expenses related to railroad track maintenance through 2013. Tax break: $232 million in 2013.
  • A provision that allows motorsport race tracks to more quickly write off improvement costs. Tax break: $46 million in 2013.
  • Enhanced deductions for companies that donate food to the needy, books to public schools or computers to public libraries. Tax break: $218 million in 2013.
  • A tax break that allows TV and movie productions to more quickly write off expenses. Sexually explicit productions are ineligible. Tax break: $266 million in 2013.
  • A tax credit of up to $2,500 for buying electric-powered vehicles was expanded to include electric-powered motorcycles. Golf carts, however, were excluded. Tax break: $1 million in 2013.

Increase your money and finance knowledge from home

What is Inflation?

Why do prices go up?

View Course »

Economics 101

Intro to economics. But fun.

View Course »

TurboTax Articles

A Tax Filing Factsheet for eBay Sellers

You can find almost anything for sale on eBay, from a piece of fine art to clippings of Justin Bieber?s hair. So it's no surprise that the IRS doesn't view all sellers alike in the online marketplace. You may not have to pay tax at all if you are essentially hosting an online garage sale, but if you run your eBay account more like a business, you should be reporting your sales to the IRS.

Tax Tips for Handymen and Odd Jobs

If you work as a handyman or do odd jobs around town for money, you are operating a business in the eyes of the IRS. Since you own your own business, you're likely a self-employed sole proprietor. This means you'll have lots of potential tax deductions to investigate.

Identity Theft: 7 Steps to Reclaiming Your Identity and Keeping it Safe

As more personal information continues to be stored online, the risk of identity theft also increases. In 2014 alone, the Bureau of Justice reported that 17.6 million U.S. residents experienced identity theft. If someone uses your personal data pretending to be you, it's a serious crime. With quick, decisive action, you can help discover the fraud, stop further damage and reclaim your identity. Here are six steps to get you on your way.

Need More Tax Time? File a Tax Extension

If you need more time to complete your taxes, file a tax extension, but don't miss out on your chance for a tax refund by not filing at all. Learn more about tax extensions from this 2012 infographic!