Lawmakers Should Preserve Pro-Growth Tax Extenders

Tax extenders bills have repeatedly offered a mixed bag for taxpayers – some broadly beneficial provisions are packaged together with more narrowly targeted credits and deductions that aid only a small handful of special interests. National Taxpayers Union has long believed that the extenders should be broken into much smaller legislation so that each provision can pass or fail on its own merits. At the same time, certain components are extremely important to economic growth and should not be allowed to expire. With that in mind, NTU offers Congress the following recommendations as it crafts the extenders package.  Still, a comprehensive revision of the entire tax system, which could obviate the need for most if not all of these provisions in their present form, remains NTU’s preference.

Make Pro-Growth Expensing Provisions Permanent. The most meritorious extenders are those that would promote economic expansion by increasing cost recovery under the Tax Code. Provisions allowing businesses to more quickly and fully expense capital investments, such as Bonus Depreciation (H.R. 2510), and Section 179 should be made permanent. So should the Research & Development credit (H.R. 880).

Repeal Obamacare Tax Increases. This extenders vehicle provides an opportunity to ease the tax burden of the Patient Protection and Affordable Care Act. Unnecessary provisions like the medical device tax, the tanning tax, and the “medicine cabinet tax” should all be eliminated. None of these taxes offer any benefit to public health.

Eliminate Wind Production Tax Credit. The PTC is regularly included in extenders, thereby bestowing significant tax benefits to wind farms and creating unfair distortions in energy markets. Congress must put an end to this credit by allowing it to fully phase out by 2018. H.R. 1901 would help ensure this phase out while cutting the inflation factor for existing credits over time. It could also provide helpful momentum to a broader discussion that would streamline narrowly drawn energy credits and deductions in favor of commensurate reductions in tax rates.

Guarantee Internet Tax Freedom. The extenders package represents an excellent opportunity to make permanent the ban on state and local Internet access taxes. The current prohibition, which has been in place since 1998, is scheduled to expire this month. A bill to make the ban permanent, H.R. 235, enjoys broad, bipartisan support and passed the House by voice vote in June. The Senate companion, S. 431, has 50 cosponsors.

Restrain IRS Overreach. The Internal Revenue Service has increasingly become a rogue agency – all too frequently treating individuals, businesses, and non-profit organizations unfairly. While Congress must address this in a comprehensive fashion, the extenders bill should include more targeted approaches to IRS reform – ones that address urgent areas where clarification is needed now to prevent harmful practices from metastasizing into the agency’s institutional culture. For instance, it should enact a statutory ban on the application of gift taxes to contributions to non-profit groups. H.R. 1104, which would do just this, passed the House by voice vote this year.  It should include H.R. 709, to provide a better means to fire IRS employees who engage in political targeting. And the package should incorporate H.R. 3167, to prohibit the IRS from hiring outside law firms to conduct sensitive investigations, a practice that opens the door to the harassment of taxpayers and the exposure of private information.