- The Washington Times - Sunday, February 11, 2018

Electric motorcycle manufacturers, NASCAR racetracks and Puerto Rican rum producers all breathed a sigh of relief last week.

Their federal tax breaks that they’ve come to rely on had been left out of the massive tax-cut package last year, as Congress rushed to clean the code and get rid of special interest credits and deductions.

But less than two months later, lawmakers rushed to add dozens of loopholes, deductions and credits back into the code as part of the new two-year budget agreement.

The 50-odd breaks, which apply retroactively to 2017, amount to $17 billion, according to an analysis by the Congressional Research Service. They include a boost in the rebate paid back to Puerto Rico and the U.S. Virgin Islands on every gallon of imported rum, credit for the “depreciation” of the value of racehorses, and a slew of breaks intended to bolster the market for clean energy.

Renewing such industry-specific breaks essentially reverses one of the chief goals of the $1.5 trillion tax-cut package, said Nathan Nascimento, executive vice president of Freedom Partners, an outside advocacy group with ties to the Koch brothers’ network.

“The entire point of tax reform was to get rid of ridiculous carve outs and subsidies that only benefit the industry that’s lobbying for them — not reinstate provisions that have already been allowed to expire,” he said.

Together, the programs are known as the “tax extenders.” They are renewed every year or two, and for just a short period of time. Analysts said that helps keep them going while masking their true budget impact.

And each of the programs has powerful patrons on Capitol Hill — people whose votes were needed to pass the two-year budget agreement.

Rep. Kevin Brady, who as chairman of the Ways and Means Committee is Congress’ chief tax-law writer, acknowledged as much in explaining recently why the extenders package was likely to pass.

“Clearly, I’m not a fan of extenders. I think short-term, temporary policies are rarely the best,” the Texas Republican said. “Nonetheless, each of those provisions has an industry that’s tied strongly to it, as well as members of Congress who advocate for it.”

Many of the tax breaks expired at the end of 2016 but were renewed retroactively for only one year in the new spending plan, meaning many individuals and businesses may have to reach back and file amended returns if they want to reap the benefits.

A Ways and Means Committee spokesperson said extenders have been passed retroactively for years, and that businesses and individuals had been counting on extensions for the ones that lapsed at the start of 2017.

“Taking care of these as quickly as possible gives the IRS time to be ready for tax filing season and prevents filing issues for taxpayers,” the spokesperson said. “So now we have addressed the extenders under the old tax code — and members can move forward with a clean slate and ask themselves: what role should extenders play under our new tax code?”

But senators seem more attached to the current practice of annual goody-lists.

Senate Finance Committee Chairman Orrin G. Hatch was a major backer of the tax extenders package, and called its inclusion in the budget bill a smart move.

Finance Committee spokeswoman Katie Niederee said, though, that there’s “still work to do.”

“The bill Hatch introduced last year was the foundation for the bipartisan provisions that just became law, and he’ll keep working with his colleagues to determine the best path forward,” she said.

Sen. Ron Wyden of Oregon, ranking Democrat on the Finance Committee, seemed skeptical that a broad overhaul to the process is on the horizon.

“Kevin Brady said for literally years that he was going to be doing tax reform and the days of extenders were over,” he said. “So it seems to me that Chairman Brady’s chickens have come home to roost.”

Mr. Brady, Mr. Hatch, and Mr. Wyden helped craft a package in 2015 that made permanent some of the most popular breaks, like a credit for research and development, and so there was less attention paid to the other preferences that were set to expire after 2016.

The retroactive nature of the breaks, though, limits their upside as economic stimulators, since people have already made their investment and tax choices for 2017, said Erica York of the Tax Foundation.

“Making retroactive tax policy, they shouldn’t expect that to contribute positively to economic growth in the long term, and it can even hurt it as businesses or individuals don’t know what tax code they’re going to be operating under until the close of the year,” she said.

• David Sherfinski can be reached at dsherfinski@washingtontimes.com.

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