CHN: Tax Extenders Stall in Senate
The Senate and the House are taking different approaches to extending dozens of temporary tax cuts that have expired or are scheduled to expire. Known as “tax extenders” because Congress has for years routinely extended them, these tax breaks predominantly benefit business. Several of the most expensive of the tax loopholes make it possible for multinational corporations to pay little or no U.S. taxes. The Senate is using a shorter-term comprehensive approach to extending nearly 55 tax breaks for two years, while the House has begun moving selected provisions individually and making them permanent.
While the Senate and House tax-writing committees are working to extend tax breaks for corporations, separate legislation has been introduced in both bodies to restrict one of the particularly egregious loopholes corporations use to avoid taxes.
Senate Action: On April 3, the Senate Finance Committee passed by a voice vote a retroactive two-year $85 billion package of the 55 tax extenders for 2014 and 2015 that expired at the beginning of this year. Advocates objected to the uncontested willingness of both Republicans and Democrats to pass the package without offsetting the cost while unemployment insurance, also within Finance Committee jurisdiction, did not pass in the Senate until it was paid for. (see April 14 Human Needs Report). Majority Leader Reid (D-NV) filed a cloture motion (to limit debate), setting up a first vote on the Senate floor. On May 15, that vote failed to garner the 60 votes necessary to advance the bill so that it could be debated and voted on. Senator Mark Kirk (R-IL) was the only Republican to join Democrats and Independents to cut off debate. Leaders Harry Reid (D-NV) changed his vote to ‘no’ so that he could bring the extenders package up for a vote again at a later time.
While Republicans support the extenders package, they objected to not being allowed to offer amendments. Leader Reid was not about to allow votes on controversial amendments. One amendment Republicans wanted to offer would repeal the 2.3 percent medical device tax which pays for part of the Affordable Care Act.
House Action: On April 29, the House Ways and Means Committee passed with almost straight party line votes a permanent extension of six corporate tax expenditures. The package of bills costing $310 billion over ten years passed without any offsetting revenue increases. On May 9, perhaps the most popular bill in the group, the tax credit for corporate research (H.R. 4438) was taken up on the House floor and got a resounding, veto-proof majority of 274-131. (See May 12 Human Needs Report.)
The House Ways and Means Committee reportedly plans to mark up another package of tax extenders on May 29. Businesses are allowed to take tax deductions for the cost of new equipment, software, and buildings as they lose value, or depreciate, over time. Bonus depreciation allows companies to deduct these expenses on an accelerated timeline, supposedly as an incentive to invest. Citizens for Tax Justice released a paper that questions the effectiveness of this tax break and estimates that this most expensive of the tax extenders costs $281 billion in lost revenue over 10 years. Along with bonus depreciation, the Committee will mark up bills to extend the IRA charitable rollover, make permanent the charitable deductions for food inventory and property donated for conservation, and modify the excise tax on investment income of private foundations.
Many believe that the tax extenders will not be finalized until after the fall elections.
Bill to Limit Corporate Tax Avoidance. On May 20, Senator Carl Levin (D-MI), Chairman of the Permanent Subcommittee on Investigations within the Senate Homeland Security and Government Affairs Committee, and Representative Sander Levin (D-MI), Ranking Democrat on the House Ways and Means Committee, introduced the Stop Corporate Inversions Act of 2014 (H.R. 4679 in the House/no bill number yet in the Senate). The most recent effort by Pfizer Inc. to merge with the much smaller British drug maker AstraZeneca provided impetus for the brothers from Michigan to introduce these bills, although their concern about corporations hiding income offshore predates the Pfizer bid. Under current law the merger would enable Pfizer to change its corporate residence to Britain and wipe out all U.S. tax liability on its $73 billion in earnings now parked in offshore subsidiaries. Currently, such mergers are legal if at least 20 percent of the stock is foreign-owned. The legislation would increase that to 50 percent and be applied to mergers that take place after May 8, 2014. A provision in the President’s 2015 budget is similar to the legislation.
Some Republicans claim to support the legislation but argue that the issue should be dealt with in comprehensive tax reform. While the Senate version gives a nod to that approach by sun-setting after two years, Senator Levin believes action is urgently needed. He said, “The Treasury is bleeding red ink, and we can’t wait for comprehensive tax reform to stop the bleeding. Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform.” The House bill makes the change permanent.
The Coalition on Human Needs is a member of Americans for Tax Fairness, which has sent letters to Senator and Representative Levin in support of their legislation. Given the power corporations wield, it will be difficult to pass this legislation aimed at reining in one form of corporate tax avoidance.