WASHINGTON, April 15, 2015 – Another Tax Day is passing, and the Section 179 expensing allowance and other key tax incentives are once again in limbo – and may continue to be for some time. The Section 179 is one of about 50 tax provisions, known as “extenders,” that weren’t renewed for 2014 until last December, creating uncertainty for farmers, equipment manufacturers and many others.
There could be another long delay this year, because congressional Republicans still say they plan to move a broader tax reform bill, even though the chances of getting agreement with President Obama appear slim at best.
The problem with taking up an extenders bill now is that the move would be read as a signal that tax reform is dead, said Sen. Charles Grassley, a member of the Senate Finance Committee. The Iowa Republican doesn’t think the delay will last until December, however. “Everybody knows that doing it in December is the wrong thing to do,” he said.
The House voted in February to make the $500,000 Section 179 expensing allowance permanent, but doing so would cost the government $77 billion over 10 years, which is why that and other tax breaks have been continually extended only on a temporary basis.
House Republicans insist there’s still hope for a broad tax reform bill.
“I look forward to getting tax reform done,” House Majority Leader Kevin McCarthy, R-Calif., said this week as lawmakers returned from their two-week Easter recess.
McCarthy noted that Republicans have two things in their favor this year. Because they control the Senate they could use the reconciliation process to move a bill through that chamber without worrying about a filibuster – reconciliation bills only require a simple majority in the Senate. Republicans are also forcing the Congressional Budget Office to do cost estimates of tax bills using “dynamic scoring,” which take into account the possibility that tax cuts could stimulate economic growth and increase revenue. “We are setting the structure for getting greater tax reform than in the past,” McCarthy said.
House Ways and Means Chairman Paul Ryan, R-Wis., has been saying there’s still a chance to do a corporate tax reform bill, although he said it will require a deal to lower tax rates on so-called pass-throughs, entities such as partnerships and S corporations that are widely used by small businesses to avoid paying taxes twice on business profits. Profits are taxed at the individual level.
A corporate tax reform bill would help Republicans solve another problem. They need money to shore up the highway trust fund, which is due to run out of money this summer. Ryan told reporters recently that there’s no “Plan B” for finding the money.
In the meantime, Republicans are using tax season to force votes on issues that are important to the party’s base, such as repealing the estate tax and will be using social media over the next few days with tweets and other posts aimed at eliminating the so-called #deathtax.
A bill (HR 1105) that the House will vote on this week to kill the estate tax would cost the government $117 billion in lost revenue between now and 2020, the Joint Tax Committee estimates.
Rep. Kristi Noem, R-S.D., is making a personal case for repealing the tax, citing her family’s experience when her father was killed in a farming accident while she was in her early 20s. The family faced a choice of selling land that was needed to stay in business or taking out a loan to pay the estate tax bill, she told fellow members of the House Ways and Means Committee. “For the next 10 years I paid on that stupid loan for a federal government that threatened our family business because we had a tragedy,” said Noem, now 43.
Noem’s case might have more resonance if Congress had not raised the exemption to $5 million, indexed the limit to inflation and lowered the top tax rate. For 2015, the exemption is $5.43 million and the top tax rate is 40 percent. For years until 1997, the exemption was set at $600,000 and the top tax rate was 55 percent.
The White House cited the exemption in its Statement of Administration Policy threatening a veto of the House bill. More than 99 percent of Americans, “including virtually all small businesses and family farms, do not pay any estate tax,” according to the statement. Killing the estate tax “would also shift a greater share of the tax burden onto working Americans at a time when the top 1 percent already holds more than 40 percent of the Nation's wealth and wealth disparities have risen to levels not seen since the 1930s,” the White House said.
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