The Senate, on its way out at the close of the 113th Congress, approved the extension of more than 50 tax breaks, collectively known as “tax extenders,” which had expired at the end of last year. The provisions cover everything from business research costs to NASCAR tracks and will now apply to tax year 2014.
The extenders will expire again in two weeks, however, and Congress will have to revisit their renewal in the New Year. It’s a process that tax experts abhor, as many incentives inherent in the extenders can’t have their full effect without providing the beneficiaries a degree of certainty about their continuation into the future.
The package passed the Senate without the support of outgoing Senate Finance Committee Chairman Ron Wyden (R-OR), who blasted the provision as not having “the shelf life of a carton of eggs.”
More importantly, these “eggs” whisked through the Senate will be costly. Businesses and individuals will be able to claim an estimated $45 billion of deductions and credits on their 2014 tax returns. As Taxpayers for Common Sense notes, that figure is a 10-year estimate that assumes the tax measures will expire in two weeks – when they’re sure to be reauthorized again by the next Congress. The watchdog group pegs the true cost of the tax breaks at more than $81 billion for the first year.
Taxpayers for Common Sense highlighted these “10 top cherries” atop the $1.1 trillion omnibus spending package passed by Congress and signed by President Obama:
ONE: A break for NASCAR track owners.
Owners of NASCAR tracks and other “motorsports entertainment complexes” may write off the cost of facilities on their taxes over seven years, instead of the standard 39 years for nonresidential property and 15 years for “improvements,” such as roads. This is provided the venue hosts an event within three years of its completion. Est. cost in FY 2015: $11 million.
TWO: Extension of some racehorses’ classification as 3-year property.
The 2008 farm bill temporarily cut the cost recovery period from seven years to three years for racehorses that begin training when they’re older than two. This provision extends this recovery period to all racehorses despite a U.S. Treasury study that determined racehorses have an economic life of nine years when including post-career breeding and resale value. Est. cost in FY 2015: $74 million.
THREE: Expensing breaks for film and TV productions.
The law allows filmmakers the option of deducting significant costs for most productions. Producers can elect to expense the first $15 million of costs incurred in the current year, which can be claimed if at least 75 percent of the costs are for services performed in the U.S. Est. cost in FY 2015: $245 million.
FOUR: Research & development tax credit.
This tax credit, which has an extraordinarily broad definition of “research,” generally goes to larger corporations. Companies that have benefited in the past include Microsoft Corp., Boeing Co., United Technologies Corp., Electronic Data Systems Corp. and Harley-Davidson. Est. cost in FY 2015: $3.786 billion.
FIVE: Bonus depreciation.
Instead of writing off costs of equipment over many years on a depreciation schedule, bonus depreciation allows fifty percent of the cost of equipment purchased in 2014 to be deducted immediately, with the remaining cost deducted over time. This break was designed to help stimulate the economy during hard times. But surveys have shown it has little or no effect. Est. cost in FY 2015: $45.3 billion.
SIX: Rum excise tax revenues in Puerto Rico and the Virgin Islands.
The history of this break is byzantine and confusing, but bottom line, Congress will extend a provision increasing an excise tax rebate of $13.25 per proof gallon of rum distilled in Puerto Rico and the U.S. Virgin Islands. The provision’s main beneficiaries? The liquor companies Diageo and Bacardi. Est. cost in FY 2015: $168 million.
SEVEN: Extension of American Samoa economic development credit.
This credit allows certain corporations to offset a portion of their U.S. tax liability on income earned in American Samoa from active business operations, sales of assets, or certain investments in American Samoa. Est. cost in FY 2015: $14 million.
EIGHT: Breaks for alternative fuel.
Companies that produce unconventional alternative fuels receive a production tax break of 50 cents per gallon while companies that blend traditional fossil fuels with small amounts of high carbon fuels receive the same tax benefit. Est. cost in FY 2015: $397 million.
NINE: Alternative fuel vehicle refueling property
This provision provides a 30-percent tax break for gas stations or other facilities installing biodiesel or 85 percent ethanol blender pumps or repowering sites for electric vehicles. Stations dispensing natural gas, liquefied natural gas (LNG), and liquefied petroleum gas (LPG) are also eligible. Est. cost in FY 2015: $38 million.
TEN: Deduction of state and local general sales taxes.
This was eliminated from the tax code in the 1986 reforms, but was revived in recent years. It gives taxpayers the option of deducting itemized state and local sales taxes from their federal income tax, but only if they don’t deduct state income tax. The biggest beneficiaries are residents of states without state income tax, among them Alaska, Florida, Nevada, and Texas. Est. cost in FY 2015: $2.924 billion.
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