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CBPP: US 'Tax Extenders' Extension Should Be Funded

by Mike Godfrey, Tax-News.com, Washington

17 December 2013


With pressure growing on the United States Congress to agree to the annual renewal of the group of federal tax provisions requiring frequent annual renewal (the "tax extenders"), the Center on Budget and Policy Priorities (CBPP) has advised that, given current fiscal deficits, policymakers should make a firm commitment to provide funding for any extension of these provisions.

There are said to be some 64 tax provisions expiring on December 31 this year, some of more significance than others. However, the CBPP confirms that "paying for those tax extenders that Congress continues would have a significant impact on long-term deficits."

For businesses, the tax extenders available until end-2013 include increased expensing under Section 179 (full deduction on cost of qualifying equipment), the 50 percent bonus depreciation; the work opportunity tax credit; and the credit for research and development expenses. For individuals, they include mortgage tax relief, the deduction for state and local sales taxes, education tax deductions, and tax-free distributions from individual retirement accounts for charitable purposes.

US public debt amounts to 75 percent of gross domestic product (GDP) in 2013 and, assuming the tax extenders are continued but not paid for, the CBPP projects that it will climb under current policies to 99 percent of GDP in 2040. If policymakers were to offset the roughly USD50bn annual cost of continuing the tax extenders, it forecasts that the debt-to-GDP ratio would rise about 8 percent less, reaching 91 percent in 2040 and eliminating about one-third of the projected rise in the debt ratio by 2040 under current policies.

In addition, the CBPP feels that having to pay for the extension of any tax extenders would also improve tax policy decision-making. "Imposing the same type of fiscal discipline on the extenders that we impose on other budgetary measures would apply needed scrutiny," it says. "In addition, the need to pay for continuing those extenders that withstand scrutiny should provide a vehicle to pare some highly inefficient tax subsidies."

It is advised that "Congress should adhere to this 'pay-for' norm on tax extenders, whether it extends them in a stand-alone bill or as part of broader tax reform."

"While the primary reason to require offsets for the tax extenders is fiscal responsibility, such a move also should improve tax policy by subjecting these provisions to needed (and, in some cases, long overdue) scrutiny," the CBPP concludes. "Policymakers may decide that some extenders are not worth maintaining. And a commitment to paying for the extenders would nudge policymakers to address some weaknesses in the tax code as they searched for other revenues to offset the extenders."

TAGS: individuals | tax | economics | business | sales tax | tax incentives | fiscal policy | corporation tax | tax credits | education | United States | tax breaks | tax reform | individual income tax | research and development

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