Tax Extenders: Small Progress but Long Way to Go.

The Subcommittee on Select Revenue Measures of the House Ways and Means Committee announced yesterday the Subcommittee will hold a hearing on Member proposals related to certain tax provisions that either expired in 2011 or will expire in 2012. These are famously known as the  “tax extenders”.

Congressman Pat Tiberi (R-OH), Chairman of the Subcommittee stated the Hearing is “part of a process to (of) review.”

The U.S. Senate Finance Committee previously held a hearing several months ago on the long-term fate and philosophy on expiring tax provisions.

According to the Joint Committee of Taxation, there are 60 tax provisions that expired in December 31, 2011 and another 41 that will expire at the end of this year. The size and magnitude of these provisions range from several billons of dollars a year to those that for budgetary purposes get an asterisk.

These “temporary” provisions were enacted for various reasons over the years, some because they can provide a short term boost to a certain activity or provide some kind of targeted tax relief to this or that taxpayer or provide some political sop to a well-connected group. Mostly they are enacted on a “temporary basis” because of the budgetary impact as making them permanent has significant impact on the budgetary process. 

There is considerable political support for many of the expired and expiring provisions. The merits of them are debatable. However, the haphazard way the process has worked in the past and continued for this year is not a way to legislate or make tax policy.

Some of provisions may merit extension but not sure which ones yet. However, let’s take a look at a few of them.

These are some of the provisions expiring at the end of 2011:

• Credit for electric drive motorcycles, three- wheeled vehicles, and low-speed vehicles; 
• Conversion credit for plug-in electric vehicles;
• Tax credit for research and experimentation expenses;
• Indian employment tax credit; 
• New markets tax credit;
• Credit for certain expenditures for maintaining railroad tracks;
• Credit for construction of new energy efficient homes;
• Credit for energy efficient appliances;
• Increased AMT exemption amount;
• Deduction for State and local general sales taxes;
• Increase in business expensing limits and expansion of definition of section 179 property;
• Seven-year recovery period for motor sports entertainment complexes; 
• Special expensing rules for certain film and television productions;
• Above-the-line deduction for qualified tuition and related expenses;
• Empowerment zone tax incentives;
• Disclosure of prisoner return information to certain prison officials;

How many of those are worthy and useful? Good tax policy? Support the economic recovery?

Now for next year, the situation becomes even more interesting although the number of expiring provision is less than this year but many of these guys are huge.

• Increase of the size of 15 percent rate;
• Reduced capital gain rates for individuals;
• Dividends of individuals taxed at capital gain rates;
• Ten percent individual income tax;
• Reduction in other individual income tax rates − size of 15 percent rate bracket modified to reflect 10 percent rate, and 28 percent, 31 percent, 36 percent and 39.6 percent rates are reduced to 25 percent, 28 percent, 33 percent and 35 percent.

These, of course, are the so-called Bush tax cuts involving hundreds of billions of dollars and unless something affirmatively is done, they all expire. The fate of these provisions is and will continue to be a premier issue in the election and most likely will be addressed in a lame duck Congressional session in a completely different set of politics and politicians in waiting. 

Here are a few more--

• Dependent care credit;
•  Adoption credit and adoption assistance exclusion;
• Child credit increase;
• Refundable child credit floor amount.

And even more--

• Cellulosic biofuel producer credit
• Placed-in-service date for wind facilities
• Credit for production of Indian coal

It looks like the entire Tax Code needs to be extended but fear not thou wedding guest, there are about 31,000 pages of Code and Regs left if these go down.

The Hearing is progress for those wanting to see their favorite “extender” extended. The pressure from the interest groups has been increasing. One of the problems is the revenue cost but neither party seems to really care about that anymore in an election year. The challenge is to cull the list down and find a legislative way to even consider these proposals give Congressional politics and budgetary i