NUMBER OF THE WEEK: $700 billion
The estimated cost of a potential tax extenders package that has been under intense negotiations between the White House and congressional leaders. Reports that lawmakers and their aides have a tentative deal in hand were quickly dismissed by staff last week. Although tax writers have cycled through various policy options and scenarios for a deal, one goal has been consistent in the talks: permanency. The deal-or-no deal game between Republicans and Democrats involves a handful of extenders for small businesses and the middle-class. Top provisions on the Republican wish list are the R&D tax credit, Section 179 expensing, charitable donations, and state and local sales tax deduction — measures that the House has already approved for permanency earlier this year. In exchange for these pieces, Democrats have asked for the Child Tax Credit (CTC), American, American Opportunity Tax Credit (AOTC), and the Earned Income Tax Credit (EITC). Republicans are demanding changes to the CTC and EITC to reduce abuse and fraud. The big question is what kind of program modifications would Democrats be willing to accept in order to strike a deal?
The Production Tax Credit and Investment Tax Credit are the other big pieces to the puzzle. According to sources close to the negotiations, discussions have been centered on the phase-outs of these renewable credits. Though details are elusive, negotiators are reportedly looking to gradually phase out these credits over a five-year period.
A potential mega deal would also likely include other non-extender related provisions—namely, the Cadillac tax and medical device tax. Negotiators are looking at the option of suspending both of these controversial health care taxes for two years. Suspensions would require about $15 billion in offsets.
Aides are haggling over these fine points under an unforgiving schedule. Congress may adjourn as early as Dec. 11 – contingent on members passing an omnibus bill in time. Extenders may hitch a ride with the year-end spending package. To be sure, all of this back-and-forth could be for naught if negotiations were to collapse like last year. If so, a two-year straight extension would be the most likely endgame.
Here is a quick overview of how the extenders negotiations are shaping up:
Highlights of Potential Year-End Extenders Package
R&D and 179 Expensing – permanent
Wind PTC – phase out over five years
Solar ITC – phase out over five years with “commence construction” language
American Opportunity Tax Credit – permanent/index for inflation
Work Opportunity Tax Credit – 5 year extension
Earned Income Tax Credit – permanent with program integrity provisions
Child Tax Credit – permanent with program integrity provisions/index for inflation
State and Local Tax Deductions – permanent
Bonus Depreciation – 5 year phase down under consideration
Subpart F Active Financing – under consideration
CFC Look-through – under discussion
Charitable Giving – permanent
S Corporations Built-In Gains – under consideration
Cadillac Tax – delayed for 2 years
Medical Device Tax – suspended for 2 years
Check out the special extenders section below for a closer look at the key extenders that have seen action in the House and Senate earlier this year.
More Than You Ever Wanted to Know About…Tax Extenders! This year, Republican leaders in the House have taken a slightly different approach to tax extenders by opting to move permanent extensions of several discrete provisions, as opposed to a broad temporary one or two year package. To date, the House has approved the following permanent extensions ...
All About That BEPS. Over the Thanksgiving recess, both the Senate Finance Committee and the House Ways and Means Subcommittee on Tax Policy announced Dec. 1 hearings on the Organisation of Economic Co-Operation and Development’s (OECD) BEPS initiative. Both hearings will examine the potential impact of the BEPS project on American taxpayers and firms. Expect both Senate Finance Chairman and Subcommittee Chairman Charles Boustany to look into whether the OECD’s ...
Let’s Get the Show on the Road: Highway Bill due Dec. 4. Staffers working on the highway conference report had a good excuse to leave the table early on Thanksgiving. With the temporary patch expiring this Friday, conferees and their aides enjoyed little respite during the holiday break, working intensely to get the multi-year bill across the finish line. An agreement could be announced as early as ...
Federal Reserve to Strengthen Standards for Bank Examiners. In response to concerns that the Federal Reserve is in bed with the same large financial institutions that it supervises, the agency has announced that it will be improving standards for examiners of large banks. The planned changes also follow a year-long review...
Pfizer and Allergan Merger to Move Forward despite New Anti-Inversion Regs. Pfizer Inc. and Allergan PLC announced that plans for a merger will move forward, despite the Treasury Department’s release of T.D. 2015-79, which contains...
U.S. Companies May Fall Prey to Double Taxation. As an increasing number of countries tax income tied to the digital economy, U.S. companies are double taxed on earnings since they are unable to claim the foreign tax credit under current rules. The New York Bar Association’s Tax Section recently wrote to the Internal Revenue Service, opining on whether foreign tax is creditable under...
IRS Softens Requirements for ABLE Accounts After Pushback. The Internal Revenue Service (IRS) recently issued Notice 2015-81, relaxing rules for accounts that allow people with disabilities to save money without jeopardizing their government benefits.
Earlier this year, the IRS issued proposed regulations that would have required a qualified Achieving a Better Life Experience (ABLE) program to establish...
Netherlands to Appeal EU Commission Decision in Starbucks Ruling. The Netherlands’ Ministry of Finance said that it will appeal the European Commission’s Oct. 21 decision that the Dutch government granted an illegal tax break worth up to $31.7 million to Starbucks, in violation of European Union state aid rules. The Ministry of Finance contends that the Commission failed...
Relevant Congressional Activity
House Ways and Means Committee
The Subcommittee on Tax Policy holds a hearing on the OECD BEPS project, focusing on its effect on American companies. Read more here.
Senate Finance Committee
The full committee holds a hearing on OECD BEPS project and the EU’s state aid investigations into member-countries’ tax rulings. Read more here.
House Education and Workforce Committee
The Subcommittee on Pensions holds a hearing on “Principles for Ensuring Retirement Advice Serves the Best Interests of Working Families and Retirees.” Read more here.
Joint Economic Committee
The full committee holds a hearing on the economic outlook. Fed Chair Janet Yellen is set to testify. Read more here.
Relevant Agency Activity
Department of the Treasury
Treasury Department, along with USAID, holds a Financial Inclusion Forum to examine ways to foster greater access to safe and affordable financial services. A webcast of the event can be viewed here.
Financial Services Roundtable
FSR holds a webcast discussion on “Can Big Idea Savings Programs Improve Retirement Savings? From myRA to Save 10.”
Economic Club of Washington
Federal Reserve Chair Janet Yellen is set to deliver remarks at the Economic Club of Washington. Read more here.