Although major tax reform still seems elusive this year, Senate Democrats are cooking up a hodgepodge of tax provisions that have strong support and could win approval before the November election.
Senate Finance Committee Chairman Ron Wyden (R-OR) said on Thursday he plans to revive a raft of tax breaks that expired in December – a move certain to please business and industry lobbyists but one that may face strong resistance from tax reform-minded House Republicans.
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The fate of scores of long-standing tax breaks and credits will be on the line beginning next week. They range from credits for corporate research and development, alternative and renewable energy, mass transit and low-income housing, to tax breaks for Indian coal production, railroad track maintenance and even racehorse owners.
These tax credits have never been permanent in the federal tax code, but instead have been repeatedly granted temporary extension over the years, which is why they’re known on Capitol Hill as “tax extenders.”
“I am hopeful we can reach a bipartisan agreement on extenders in the days ahead,” Wyden said in a statement. “This means jobs and much-needed certainty for families and businesses alike. But let me be clear – I’m determined that this is the last time we do extenders and would like to leverage this last extension to reform the broken tax code.”
Senate Budget Committee Chairwoman Patty Murray (D-WA), meanwhile, introduced a measure to expand tax credits for low- and middle-income households and close corporate tax breaks to pay for her plan’s cost of nearly $140 billion over the next decade.
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Murray’s plan would establish a deduction for two-earner families and expand the Earned Income Tax Credit (EITC) for childless individuals. The proposed “secondary earner deduction” would allow married-couple families to deduct 20 percent of the secondary worker’s earnings from their family’s taxable income.
Murray’s EITC proposal – more generous than the one outlined by President Obama last month – would nearly triple the maximum credit from about $500 to $1,400 in 2015 and extend the income at which the credit fully phases out to 133 percent of the full-time earnings of a minimum wage worker, or about $19,000 in 2014.
To offset the cost of expanding the tax credit, Murray proposes claiming savings mentioned in Republican House Ways and Means Committee Chairman Dave Camp’s tax reform draft. Murray wants to raise revenue by preventing companies from compensating executives with stock options to get around the $1 million annual limit of deductible cash compensation. She would also prevent companies from dodging paying U.S. taxes by shifting profits overseas.
“Today, too many struggling workers and families are left behind under our outdated tax code,” Murray said in a statement. “It is time to build on these efforts to support work—including the critical expansions of the EITC in 2009, which should be made permanent.”
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Some GOP lawmakers, including Sen. Marco Rubio of Florida as well as Dave Camp, have also expressed an interest in the tax credit, which many Republicans think is an incentive to keep low-income people for working.
But Camp’s office issued a blistering critique of Murray’s approach, dismissing it as “laughable.”
“Not only does Sen. Murray have the policy wrong, she is clearly confused about Chairman Camp's tax reform plan that grows the economy for all American workers and puts an extra $1,300 in the pockets of middle-class families,” Sarah Swinehart, a Ways and Means Committee spokesperson, said in a statement circulated on Wednesday. “What she has proposed is a set of tax increases to fuel more Washington spending on a program that the IRS’s own Inspector General has said loses billions of dollars a year to fraud.”
Swinehart added, “This is why tax policy should not be written by Democrat appropriators: They only know how to spend money and are perfectly happy to tax anyone — including hardworking families — to spend more.”
Camp’s office insists that Murray’s proposals for offsetting her tax breaks are not the same as the provisions in Camp’s tax reform draft. Murray’s office fired back.
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“With one quote, the House Ways and Means Committee staff exposed how backwards their thinking is when it comes to tax policies that work for workers and families,” said Eli Zupnick, Murray’s press secretary.
“Senator Murray introduced the 21st Century Worker Tax Cut Act, a bill that would give struggling workers a tax cut by expanding the Earned Income Tax Credit for childless workers and creating a new tax deduction for two-earner families with children,” Zupnick said. “Chairman Camp’s office called these new worker and family tax cuts ‘more Washington spending.’’’
Camp has also said he intends to scour the list of tax extenders “policy by policy,” with an eye toward reviving only those that “should be made permanent.”
“A short extension of tax policies is no way to legislate and is even worse for the families and businesses who utilize those tax benefits,” he said in a statement to The Washington Post.
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Democrats and Republicans, at one time, spoke boldly of trying to streamline the federal tax code by weeding out hundreds of costly special interest provisions and reduce rates. But partisan gridlock has left few lawmakers seriously clamoring for major tax reform this year.
“I’m not really all that optimistic that there’s going to be a lot of action,” said Joseph Minarik, senior vice president for the Committee for Economic Development and a former Clinton administration budget official.
“I’m guessing you will have some piece of legislation that will mostly deal with the extenders and may include one or two other things – possibly on the Earned Income Tax Credit, if Republicans believe that provides them with inoculation with respect to concerns about inequality,” Minarik said in an interview.
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