Extinguishing Tax Extenders

Weekly WastebasketExtinguishing Tax ExtendersShort term special interest tax breaks should not be renewed.

Budget & Tax,  | Weekly Wastebasket
Jul 12, 2019  | 6 min read | Print Article

Shortly before leaving for the Fourth of July recess, the House tax writing committee passed a so-called tax extender package. The bill contains an extension of a hodgepodge of narrow, special interest tax provisions. Extension isn’t quite the right term because many of these provisions have already expired, most at the end of 2017. That means a whole tax year has come and gone when they were not in effect. And a second tax year is more than half over. But this bill would rewrite history and retroactively extend them like they had been. Make sense to you? No? It doesn’t make sense to us either.

Tax extenders are the cockroaches of Washington policy. No matter what, they just won’t die. Similarly, for the small number of people that consume them, tax extenders/cockroaches are a delicacy, while nearly everyone else finds them hard to stomach. They typically survive by catching a ride on other larger, more important packages to get enacted. The 2008 bank bailout package had a side of extenders included. Extenders hitchhiked on the deal to avert the fiscal cliff in 2012. And they were the caboose that caught the fiscal train wreck, the Bipartisan Budget Act of 2018. Ironically, one enormous package that they didn’t cling to was the massive 2017 tax cut. The biggest change in tax policy in 30 years and these tax provisions weren’t important enough to either be made permanent or even extended for a year.

Motor Sports, Moving Pictures, And Horses

So what are some of these provisions? Well there’s one that allows owners of “motorsports entertainment complexes” (aka, places where NASCAR holds races) to shorten the period of writing off improvements to seven years. Who owns many of these tracks including Daytona and Ricky Bobby’s beloved Talladega? International Speedway Corporation. And who owns ISC? NASCAR. They don’t need taxpayer subsidies.

There’s also a provision that accelerates deductions and protects investors in film, television and live theatrical productions. It was first enacted in 2015 and has been championed by Sens. Schumer (D-Broadway, NY) and Blunt (R-Branson, MO) – see what we did there?

There’s a whole passel of energy-related tax breaks including the most expensive one in the package by far. The biodiesel tax credit weighs in at nearly $9 billion in foregone revenue before it expires – again – in 2020. That’s nearly a third of the cost of all the expiring provisions. Altogether, the 14 energy extensions in the bill are expected to lose $17.4 billion in revenue over 10 years (assuming they expire next year, which they won’t). That’s more than half of the $33.2 billion total cost of extensions in the package.

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To reduce sticker shock, the package includes a revenue raiser, a change to the estate and gift tax – essentially a repeal of some of the changes in the 2017 tax law. Of course, those don’t kick in until 2023 – which is two years after the expiration of virtually all the tax provisions in the package. That’s how you rack up trillion-dollar deficits – promise to pay later for something you give away today.

One of the regular extender provisions didn’t make it into the package, however. The 2008 farm bill included a measure that would allow owners of thoroughbred horses to write them off in three years. Senate Majority Leader McConnell (R-Kentucky Derby) got it enacted and jockeyed it into the extenders package. While we welcome its elimination, this is just gamesmanship by House majority Democrats. They likely took this provision hostage to get something out of the Senate when it comes time.

Making A Cruddy Process Worse

Speaking of which, when is this likely to move forward? Sen. Isakson (R-GA) told Politico “If I had to guess based on 21 years of experience up here, I’d say sometime between midnight on my birthday Dec. 28 and New Year’s Eve you’ll probably have an extenders package of some type.”

He’s probably right. That takes a cruddy process and makes it worse. It also means that some of these provisions would have been expired for two full years. Even with the retroactive extension, the bill envisions some of the provisions expiring December 31, 2019 – the same date as Isakson’s prediction.

Tax policy is meant to incentivize or encourage certain behavior. Business and spending decisions that were made in 2018 were done without the expected benefit of these subsidies. To turn around and hand these actors cash after the fact is an outrageous and unnecessary giveaway.