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House Republicans Pushing Misguided Tax Policy

The House Ways and Means Committee will vote tomorrow on reinstating and permanently extending five tax breaks that expired at the end of 2014 — four “tax extenders” (tax breaks, mostly for businesses, that policymakers routinely extend for a year or two at a time) and “bonus depreciation,” which lets businesses take bigger upfront deductions for certain new purchases, such as equipment.  The push represents misplaced priorities and unsound policy.

Any effort to permanently extend tax provisions should give top priority to three important Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) provisions slated to expire at the end of 2017.  If policymakers fail to act, more than 16 million people in low-income working families, including 8 million children, will fall into — or deeper into — poverty.  The House has already voted this year to make permanent (and in some cases expand) a number of tax extenders while ignoring the EITC and CTC provisions.  Its continuing neglect of the working-family tax credits in favor of largely corporate tax breaks that aren’t paid for raises the probability that policymakers ultimately will let the EITC and CTC provisions expire.  

Three of the tax breaks that the Ways and Means bills would make permanent are particularly objectionable on policy grounds:

  • Bonus depreciation.  Policymakers have traditionally viewed bonus depreciation as a temporary provision to boost a weak economy.  For example, policymakers enacted bonus depreciation in 2002 when the economy was weak, and then a Republican President, House, and Senate let it expire after 2004, when the economy was stronger.  Policymakers enacted the more recent provision as a temporary measure during the recession in 2008.  

    Research has found bonus depreciation to be of limited value as economic stimulus.  In any case, making it permanent would sacrifice whatever modest economic boost it could provide in future recessions because firms would no longer need to accelerate their purchases during downturns to receive the tax break.  The new bill not only makes bonus depreciation permanent but expands it, at a total cost of $270 billion over the next decade, according to Congress’ Joint Committee on Taxation (JCT).
  • Two international extenders.  The House bills would also make permanent two tax extenders that allow multinational corporations to reduce their U.S. tax bills by booking their profits in offshore tax havens.  Making these tax breaks — the so-called Subpart F “active financing” exception and Controlled Foreign Corporation “look-through” provisions —permanent would encourage tax avoidance and reduce federal revenue by another $100 billion over the next decade.

Altogether, the Ways and Means bills would cost $401 billion over 2016-2025, according to JCT — more than twice the total cost of extenders legislation that the House has already passed — with the bulk of the cost coming from corporate tax breaks that are unsound policy.  And, in doing so, the House continues to neglect critical tax credit provisions for millions of working families.  

Chuck Marr
Vicepresidente de Política Tributaria Federal