Tax Extender: Horrible Way to Legislate and Worse Tax Policy

 

The Senate Committee on Finance is considering legislation of 50 or so tax law provisions that for the most part expired at the end of last year. The proposals are collectively, cleverly named the “Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act.”

According to the Joint Committee on Taxation, there are 55 tax provisions that expired on December 31, 2013 and another 6 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. Collectively, of course, the total in tax revenue once all is said and done will be close to $100 billion.

Temporary tax provisions should be enacted very selectively and rarely. They mask the real costs and are not representative of an appropriate way to legislate and in fact represent all that has gone wrong wth the tax system.  These provisions expired for a reason. And should remain expired until considered in the overall frame of tax policy.

Some of them are for very narrow special interests. Others are laughable. Some are head scratchers. Some are just a subsidy for businesses and I mean big businesses that do not need the help.

Let us take a look at a few of them:

Classification of certain racehorses as 3-year property—Generally, A taxpayer capitalizes the cost of property used in a trade or business and then recovers such cost over time through annual deductions for depreciation based on the useful life of the property.

Several years ago, Congress determined that a race house had a three-year life. Now, the illusion is to be continued in that the present-law three-year recovery period for racehorses for two years is to be extended and applied to any racehorse (regardless of age placed in service) before January 1, 2016.

This lucrative business-the hobby for many a sheik-of course needs  no subsidies.

Here is another one that is equally confusing in the tax code.

Indian Coal Credit-- A credit has been available for the production of Indian coal sold to an unrelated third party from a qualified facility for the last a seven-years. The amount of the credit for Indian coal was fo $2.308 per ton in 2013. “EXPIRE” extends the credit for the production of Indian coal  through December 31, 2015).

I thought the policy of the federal government was to discourage the use of coal.  The EPA has made its mission to put the coal guys out of business. Seems I saw something in the news about green house gases and climate change. I have no problem if the central government wants to assist Native Americans (although I think the casino business has been more successful than coal mining) The tax code is not place to achieve this goal. I wonder what big coal company is the real beneficiary?

Finally, a partial victory for the taxpayer. 

Credit for electric motorcycles and three-wheeled vehicles-- There was a10-percent tax credit available for the purchase of plug-in electric motorcycles and three- wheeled vehicles. These are not much more that a golf cart on wheels. The proposal extends the credit for electric motorcycles for more two years until the end of 2015. However and this is the big news--.the credit for electric three-wheeled vehicles is not extended and allowed to lapse.

There you have it. The extenders are moving forward. There will be many more add-ons to this bill. A revenue bill on the Senate floor attracts everything. Pay no mind to the deficit. Not important. Not even going to think about it.

The entire legislative process of the tax extenders is unseemly, not very efficient, and intellectually dishonest. These provisions-like all provisions- should undergo rigorous scrutiny and be part of the movement to reform the tax code. I doubt many of these could survive the test on their own merits.