Broader tax reform efforts should benefit from the passage of the tax extenders package, as unresolved issues and clarification of the current tax code will provide the impetus and foundation for future efforts, House Ways and Means Committee Chairman Kevin Brady, R-Texas, said.
The $622 billion tax extenders bill was signed by president on Friday. Business tax breaks such as the research and development credit and Section 179 expensing, along with expansions to household tax credits such as the Earned Income Tax Credit (EITC) were made permanent by the bill.
In total, the bill affects 52 tax breaks and renews a handful of extenders for two to five years. It also has provisions which affect Internal Revenue Service practices and create new rules for real estate investment trusts (REITs) and other issues.
Congressional leaders are already claiming the bill will pave the way for a more comprehensive tax-reform package in 2017 once a new administration takes office, according to an article published Monday in the Hill.
“The things that people focused on before, ‘Just pass my little piece, pass my little piece,’ have pretty much been done or rejected and now we can move forward on the big picture,” said Sen. Charles Schumer, D-N.Y., who is expected to become the Senate Democratic leader in 2017.
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“This will set the stage. We’re going to have a lower baseline. We’ll have a better chance to do comprehensive tax reform,” Senate Finance Committee Chairman Orrin Hatch, R-Utah, said in the Hill article. http://thehill.com/…
The $622 billion cost of the extenders package will prove to be a boon for tax reform efforts as it increases the budget baseline by $600 billion, making major changes to the tax code easier to institute without impacting the bottom line. Several tax credits which were extended or made permanent are thought to be in a better position to hold up to the scrutiny they would face under any broad tax reform effort.
With respect to potential follow-up to the extenders package, Brady noted “We have other areas of the code that members either wanted included or they felt the language could have been improved, so we’ll keep those discussions going as well. We’ve still got some work to do on the issue.”
Other aspects of the package included an extension of some renewable energy tax credits, which were included in exchange for a lifting of the crude oil export ban. Only the wind and solar industry tax credits made it to the final bill and some Democrats were caught off guard, expecting a fuller slate of such tax credits to be included. Brady has indicated that he is open to discussing the other credits, noting that many will not expire till after 2016 and don’t need to immediately be renewed.
The tax bill includes a permanent expansion of Section 179 allowing small business owners to deduct up to $500,000 of equipment purchases with a phase out for companies that purchase more than $2 million worth of equipment. Section 179 deductions will also be indexed for inflation as well.
The bill also extends 50% bonus depreciation for businesses for property placed in service from 2015-17 and phases it down to 40% in 2018 and 30% in 2019.
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