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POLITICS: PennAve

House and Senate take different paths on tax breaks

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Politics,Congress,Susan Ferrechio,Taxes,Senate,2014 Elections,PennAve,Economy,Budgets and Deficits,Magazine

Even when Congress seems hopelessly deadlocked, lawmakers are often able to agree to work together on a few priorities -- particularly when it comes to tax breaks for small businesses.

This year is no exception. Both Democrats and Republicans want to move a batch of critical tax breaks that expired on Dec. 31 and that are aimed at promoting expanded hiring and jolting the nation’s sluggish economy.

But the House and Senate are proposing two different approaches that could require extensive negotiations. Experts have predicted, to the chagrin of the business community, that the tax breaks may not become law until the end of the year or even next year.

The House Ways and Means Committee this week started the process by approving six expired tax breaks, including a research and development tax credit that aims to help businesses expand and a bill to increase tax deductions for business equipment.

Most of the measures have been renewed annually in the past with bipartisan support and some are decades old.

But this time around, Ways and Means Chairman Dave Camp, a Michigan Republican, authored the legislation so that the six tax cuts would become permanent.

The move will give businesses more certainty and ability to plan, grow and increase hiring, Camp said.

But the proposal comes with a much higher price tag. The research and development tax cut would cost $155 billion over 10 years. The cost of the entire package of a half-dozen tax cuts would top $310 billion. None of the cost would be offset with other cuts or revenue increases.

Democrats on the panel, outnumbered by the GOP, voted against many of the cuts, citing the high cost and pointing out that Republicans insist on offsetting new spending but do not provide a way to pay for tax cuts.

“To put forth a bill costing $310 billion, increasing the deficit by that amount and not paying attention to other needs, is fiscally irresponsible,” said the panel's top Democrat, Rep. Sander Levin of Michigan.

Democrats also balked at the small size of the tax cut package.

Nearly 60 popular tax cuts expired last year, including tax breaks for green energy initiatives, and the Camp plan restores all but a small fraction of them.

“We are leaving out areas that people have supported their whole career, and that flat-out isn’t right,” said Rep. John Larson, a Connecticut Democrat.

Camp said he'll likely take up other tax breaks, including individual exemptions for college tuition.

But Camp said he wants his panel to decide on the merits of each tax break individually instead of packaging everything together in one bill, as has been the practice in years past.

“Sixty bills would be unworkable,” Camp said. “We are starting with bills that have bipartisan cosponsors. We aren’t done.”

The Senate, meanwhile, is moving ahead with a larger package of four dozen tax cuts, extended for two years, at a cost of $85 billion.

Unlike the House bill, the Senate legislation includes tax breaks for individuals, including deductions for mortgage interest and higher education expenses. The Senate proposal also revives energy tax credits for electric cars, biofuel production and energy efficient homes.

Over the coming weeks, the two sides will likely negotiate a deal on a compromise bill, and tax policy experts believe the Senate version will prevail.

That’s because the Camp plan centers around major tax reform. The cost of permanently extending some tax breaks was to be offset by other changes in the tax code under a comprehensive reform plan Camp released in March.

But the prospects of major tax reform in an election year have all but vanished, while Camp's clout has diminished with the announcement of his retirement.

“I think it is going to be very difficult to get many of these provisions made permanent at this point,” Dustin Stamper, director of the national tax office of the accounting firm Grant Thornton, told the Washington Examiner. “It’s more likely we do what we’ve done in years past, where we get some sort of temporary extension of provisions rather than making them permanent. It’s easier to pass everything on a short-term basis.”

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Susan Ferrechio

Chief Congressional Correspondent
The Washington Examiner