Five sticking points in the year-end tax fight

Source: By Naomi Jagoda, The Hill • Posted: Monday, December 7, 2015

Many lawmakers hope to vote by the end of the year on a bill that makes expired and expiring tax breaks permanent, but a number of hurdles remain.

Time is running out for Congress and the White House to come to an agreement on a broad “tax extenders” package. If a deal can’t be reached soon, lawmakers will likely end up just renewing the expired provisions for one or two years without making any permanent.
Here are five of the issues that need to be resolved before a deal can be announced.
The Cadillac tax: Lawmakers on both sides of the aisle are interested in including language to repeal or delay of ObamaCare’s “Cadillac” tax on high-cost insurance plans in the extenders package. The Senate on Thursday passed an amendment to repeal the tax by a vote of 90-10.

But the amendment was included in a bill that will be vetoed because it would repeal ObamaCare. And the Obama administration supports the Cadillac tax, which is currently slated to take effect in 2018, because it raises revenue and is an incentive to lower healthcare costs. The greater the action to stop the tax, the more the White House will push back. The Congressional Budget Office estimated that a repeal of the Cadillac tax would cost about $93 billion in lost revenue.

Other aspects of ObamaCare are also a part of discussions on the tax package. Congress is also considering suspending or repealing the medical device tax in the extenders bill. And the conservative Republican Study Committee wants to make sure that it does not include additional funds for the “risk corridor” program, which is designed to help protect insurance companies against unforeseen expenses.

The price tag: The sheer size of the deal, which could cost upwards of $700 to $800 billion over a decade, is a major a concern to fiscal hawks.

Additionally, some Democrats, including Sen. Elizabeth Warren (D-Mass.), take issue with the fact that the bill wouldn’t be paid for.

They suggest that closing tax “loopholes” benefiting investment fund managers and corporate executives could be used to help offset the legislation’s price tag.

Key Republicans counter the value of making some expired tax breaks permanent outweighs the cost.

“It’s a large package, but it will be a good thing to get rid of all those and not have to go through this every year,” Senate Finance Committee Chairman Orrin Hatch (R-Utah) said Thursday.

Rep. Charles Boustany (R-La.), chairman of the House Ways and Means Committee’s tax-policy subcommittee, pointed out that the bill would extend and make permanent tax breaks that have been renewed time after time without being offset. “We’re not going to raise taxes now at this point to give tax breaks in other areas,” he said.

Meanwhile, Ways and Means Chairman Kevin Brady (R-Texas) suggested that cost estimates being reported are too high. “People are just pulling these numbers out of the air,” he told reporters. “I’m convinced if there’s a package, it will be much more focused than what we’re seeing floating around.”

Tax breaks for low-income working families: A key priority for Democrats is making the stimulus-law expansions of the Earned Income Tax Credit and the Child Tax Credit permanent, and they maintain that any deal that seals business tax provisions would also have to cement these breaks. Key provisions of the EITC and the CTC are set to expire at the end of 2017.

But the devil is in the details. Some Democrats want CTC indexed to inflation. Meanwhile, Republicans are concerned about improper payments of the EITC and CTC and want to make changes to the programs that would reduce fraud. Democrats are particularly opposed to measures that would involve requiring the recipients of the credits to provide their social security numbers. Brady said negotiators are looking at several ideas to improve the integrity of the tax-credit programs.

Energy:  The deal could extend the Wind Production Tax Credit and the Solar Investment Tax Credit for five years with a phase out. But the RSC wants to let the credits phase out as scheduled. The wind credit expired at the end of 2014, and the solar credit is set to expire in 2016.

There is also some interest in using the tax extenders package as the vehicle for lifting the ban on crude oil exports. Some lawmakers want to an end to the ban included in the bill in exchange for extending the renewable energy credits.

Brady said that Congress is looking at several possible vehicles for achieving that and said he favors lifting the ban.

“I’m really pushing hard for it to get done before we leave in some vehicle,” he said.

A number of environmental groups oppose lifting the ban even if it’s done in exchange for the extensions.

Duration: Congress is considering a deal that would make some expired breaks permanent, extend some for five years, and extend the rest for two years. Exactly which provisions end up in which bucket appears to be somewhat settled but may not be completely final.

Aside from the tax credits benefiting families, the list of provisions that would be cemented include many of the business and other tax breaks that the House and the Ways and Means Committee voted to make permanent earlier this year. But Boustany said Thursday it was unclear how many business tax breaks would be solidified.

“That’s still a point of discussion,” he said. “That’s a key point in the negotiations.”