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Camp Selects US Tax Extenders To Make Permanent

by Mike Godfrey, Tax-News.com, Washington

01 May 2014


United States House of Representatives Ways and Means Committee Chairman Dave Camp has held a hearing on marking up bills to extend permanently six of the "tax extenders" that expired at the end of last year.

More than 50 tax relief provisions expired at the end of last year – some being of more significance than others. At the beginning of April this year, the Democrat-led Senate Finance Committee proposed a renewal of virtually all of the tax provisions for the next two years (covering 2014 and 2015) by adding their overall USD85bn annual cost to the US federal fiscal deficit.

However, the Finance Committee's Chairman Ron Wyden (D-Oregon) had emphasized at the time that any such extension would be the final bill that would temporarily renew the tax extenders, and that by the end of next year it would have to be agreed to cancel or renew them permanently within a comprehensive tax reform framework.

On the other hand, Camp has chosen six of the tax extenders seen as important to economic growth and aims to immediately extend them permanently. They include a simplified credit for research and development (R&D) expenses; increased expensing under Section 179 (full deduction on cost of qualifying equipment) for which the limit fell from USD500,000 to USD25,000 at the end of 2013; the reduced recognition period for the built-in capital gains of S corporations; and the rules regarding basis adjustments to the stock of S corporations making charitable contributions of property.

Two other bills would allow corporations (primarily financial institutions, but also US companies with affiliates that provide financing for overseas buyers) to not pay taxes on the financial income they earn in foreign countries, so long as those profits remain offshore; and extend the subpart F exemption whereby the redeployment of earnings between foreign subsidiaries of US corporations is considered to be active income not subject to immediate US taxation.

"Short-term tax policy is bad for business and bad for economic growth and jobs," stated Camp, on releasing the bills. "The US is the only country in the world that allows such important pieces of its tax code to expire on a regular basis. By making these six bipartisan policies permanent, businesses small and large will have the ability to plan for the future, invest in the economy, hire new workers, and invent new technologies and products."

However, while Camp professed that the "permanent polices are an important first step to put us on a path towards comprehensive reform that lowers rates and makes the code simpler and fairer," he also elected not to consider their future funding. His measures were then questioned when it was disclosed that the Joint Committee on Taxation's preliminary estimate of the total cost of the six bills would be some USD310bn over the next 10 years (from 2014 to 2024).

Therefore, while Americans for Tax Reform could welcome that "the permanent tax relief is targeted to prevent the worst anti-growth tax hikes from taking effect for good," the Committee for a Responsible Federal Budget (CRFB) noted that, "although some credit should be given for Camp's decision to review carefully each tax extender in place of a blanket extension, any long-term extensions should ideally be addressed in the context of fiscally responsible and comprehensive tax reform."

The CRFB added that "this is the approach he took in the Tax Reform Act of 2014, a tax reform package that would have reformed and extended fewer than ten tax extenders and let expire three times that amount. … (and which) was revenue-neutral so as not to add to the deficit. Any short- or long-term extension outside of tax reform should take that same approach, abiding by pay-as-you-go rules to offset the cost of any tax cuts with reduced spending or increased revenue elsewhere in the budget."

TAGS: individuals | Finance | tax | business | law | budget | corporation tax | tax credits | legislation | United States | tax breaks | revenue statistics | tax reform | individual income tax | research and development | Tax

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