Lawmakers are once again moving to pass a $96 billion package of controversial tax breaks that mostly benefit businesses under the pretense of incentivizing economic activity.
The Senate Finance Committee on Tuesday morning will hold a session to weigh the so-called merits of the tax breaks, widely known as tax extenders. Given that Sens. Orrin Hatch (R-Utah) and Ron Wyden (D-Fla.), respectively the chair and ranking member of the committee, have introduced bipartisan legislation to extend the tax breaks, the direction lawmakers are heading is clear.
But as CTJ and others have repeatedly pointed out, the tax extenders are a motley array of ineffective corporate giveaways. To name a few, the extenders includes the research and development credit, the “active financing” loophole and the CFC look-through rule. The active financing loophole makes it easy for multinational corporations to cook their financial books in a way that makes it appear that they are generating income in low-rate foreign tax havens while their costs are deductible in the United States. And the “CFC look-through” rule gives companies additional options for offshoring their profits on paper. An exhaustive Senate investigation into Apple’s international tax avoidance found that the CFC look-through rule was a key part of the company’s tax-dodging strategy.
If committee members critically examine these and other tax breaks during tomorrow’s hearing, they will be in for a long day-- there are more than fifty of them. But it appears lawmakers are more concerned about quickly moving to pass the legislation.
Sen. Hatch has said moving fast is the only way to make sure these tax breaks will work, arguing that “these provisions are meant to be incentives, (and) we need to advance a package as soon as possible.”
There is a major problem with this argument: the bill would apply retroactively. The extenders generally expired at the end of 2014, and the Hatch-Wyden plan would reactivate the tax breaks as of Jan. 1, 2015. This would mean that the two-year extenders legislation would expire at the end of 2016, so a quarter of time covered under this plan has already passed. This makes the incentive argument less compelling: how can providing big corporations with a retroactive tax credit for past activity create an incentive?
The tax extenders, to be sure, include a few small provisions that would have some effect on middle-income families. The deduction for teacher expenses provides teachers with federal income tax liability the chance to reduce their tax slightly, and the deduction for state and local sales taxes allows upper-middle taxpayers a chance to deduct their sales taxes instead of state income taxes.
A thorough Finance Committee exploration of these tax breaks would allow Congress to evaluate whether these and other tax breaks serve any social purpose—and, importantly, whether the tax code is the appropriate policy tool to achieve these social goals.
But Congress doesn’t appear to be focused on weighing the individual merits of each of the extenders. And that’s a shame.