A final congressional stalemate in late December means the New Year’s expiration of a host of tax breaks, amounting to a $54.2 billion increase for green-energy businesses, teachers, homeowners, college students and others.
Businesses will take the biggest hit, with the disappearance Wednesday of a valuable research tax credit, subsidies for building wind turbines and incentives to make energy efficiency improvements to buildings.
Individuals will take hits, too. Those who pay college tuition will lose a tax credit, as will taxpayers who deduct state and local sales tax payments or who pay mortgage insurance. Teachers will lose a tax credit for buying classroom supplies. Some commuters no longer will get federal tax help for taking public transit to work.
That’s not to say the breaks are gone for good.
Analysts on all sides expect Congress to try to pass a bill extending some or all of the credits, and those decisions are likely to be retroactive to the first of the year.
Also expiring are some of the benefits available to those who have lost jobs because of an evermore global free trade regime. The Trade Adjustment Assistance program is a particular priority for Democrats, who say that while basic benefits remain, add-ons such as help for older workers expire.
“TAA is our commitment to workers competing in a globalized economy, and we must immediately extend the improvements that we made in 2009 when Congress returns,” Rep. Sander M. Levin, the ranking Democrat on the House’s tax-writing committee, said Tuesday.
But the tax credits and the trade benefits could become ensnared in a larger debate about overhauling the broad tax code, in which thousands of special breaks could come under scrutiny.
A few developments late in 2013 suggest things could be messy.
President Obama may have derailed efforts when he said he would nominate Sen. Max Baucus, Montana Democrat and chairman of the Finance Committee, to be ambassador to China.
Mr. Baucus was working with his House counterpart, Rep. Dave Camp, Michigan Republican, to set the stage for some tax reform.
If he is confirmed to the ambassadorship and departs, the Senate will have to restart the process.
Sen. Ron Wyden, the Oregon Democrat most likely to succeed Mr. Baucus as chairman of the Finance Committee, said in December he believes House Republicans are moving away from a broad overhaul.
“It looks more and more like the other body has in effect decided to, if not slow-walk tax reform, certainly take its time,” Mr. Wyden said.
He took that as a signal that Congress should proceed with extending the expiring tax cuts as a stand-alone bill and deal with the massive tax code overhaul later.
The Congressional Research Service identified seven tax credits for individuals that expired at the end of 2013, and another 49 aimed at businesses and investors.
Most of them had been set to expire earlier but were extended in last-minute deals.
Tax professionals say the year-to-year extensions are no way to provide certainty for taxpayers, but the Congressional Research Service said short-term extensions force policymakers to review tax credits regularly to make sure they are shaping behavior in economically beneficial ways.
Then there are concerns about another $50 billion in tax cuts, which will only deepen projected deficits.
The Center on Budget and Policy Priorities, a left-leaning fiscal think tank, said that if Congress wants to extend the expiring tax breaks, it should find tax increases or other spending cuts to cover the hit to the budget.
Chuck Marr, the center’s director of federal tax policy, said that paying for the breaks would mean a significantly lower debt burden in the next 25 years.
“We’d still need to do more to address long-term deficits and moderate the debt ratio, but paying for the extenders would represent important progress,” Mr. Marr argued in a blog posting.
Democrats tried a last-minute power play in the Senate to push through 55 extensions, but Republicans objected, saying Democratic leaders were acting for show.
Sen. Orrin G. Hatch, the ranking Republican on the committee that has jurisdiction over taxes, called Democrats’ move an absurdity and demanded that the Finance Committee consider the bill first.
“I am appalled,” the Utah Republican said. “I have only been here 37 years, but I have never seen the rules violated as they have been — frankly, violated in a way that is destructive to the Senate, not helpful or constructive to the Senate. This is just another illustration.”
Senate Minority Leader Mitch McConnell, Kentucky Republican, proposed a trade: Democrats would withdraw their slate of nominations they were trying to push, and the Senate could take up the tax package with amendments.
Majority Leader Harry Reid, Nevada Democrat, refused, saying he wanted the nominations.
The credits apply for all of the 2013 tax year, which means filers can claim them on their returns due in April.
Despite the lack of year-end changes, the Internal Revenue Service says it won’t be ready for tax season on time.
The agency said the government shutdown set it back slightly, so the filing season won’t officially open until Jan. 31.