Bloomberg News

Bid to Revive U.S. Tax Cuts Halted in Senate as Parties Feud (1)

May 16, 2014

Wind energy

Senate Finance Chairman Ron Wyden's bill would revive more than 50 breaks that lapsed Dec. 31 and extend them through 2015, which include the production tax credit for wind energy.. Photographer: Meg Roussos/Bloomberg

A proposal to revive lapsed tax breaks for corporate research, wind energy and teachers fell apart in the U.S. Senate, leaving their fate uncertain -- perhaps until the end of the year.

The tax breaks have bipartisan support. Still, they hit a roadblock yesterday on the Senate floor amid a broader partisan feud over whether Republicans could offer amendments to the bill. Now, with the Republican-led House taking a different approach on the tax breaks, the issue may not be resolved until a lame-duck session after the November election.

Republicans, who usually champion tax cuts, scuttled the $80 billion-plus proposal that many of them support, saying their constituents’ views were being stifled. A 53-40 procedural vote fell short of the 60 needed to advance the bill, with just one Republican in favor.

“The institution of the Senate is more important than one little issue or one big issue,” said Senator Charles Grassley of Iowa, a Republican who supports extending the tax credit that’s important to his state’s wind-energy industry yet was among those voting to stall the legislation.

The bill’s Democratic author, Senate Finance Chairman Ron Wyden of Oregon, said he would try working with Republicans on an agreement that could revive the plan next week as long as possible amendments are “narrowly related” to the bill.

‘To Punish’

“The Senate voted to punish innovators, punish small businesses, punish homeowners who are underwater with their mortgages, punish returning veterans looking for jobs, and punish students already struggling to pay for college tuition,” Wyden said in a statement yesterday.

The tax extenders, as they’re known in Congress, have needed to be attached to broader legislation each of the past three times they’ve passed. In 2008, they were part of the Troubled Asset Relief Program and in 2010 and 2013 they were linked to extensions of lower individual income tax rates.

Now, without inclusion in a must-pass bill, they’ve stalled.

“It has not been the star of the show,” said Rohit Kumar, co-leader of tax policy services at PricewaterhouseCoopers LLP in Washington and a former aide to Senate Republican Leader Mitch McConnell of Kentucky. “There was always something else.”

Intel, Citigroup

Wyden’s bill would revive more than 50 breaks that lapsed Dec. 31 and extend them through 2015. They include the research and development tax credit sought by companies such as Intel Corp. (INTC:US), the production tax credit for wind energy and a provision allowing companies such as Citigroup Inc. (C:US) and Caterpillar Inc. to defer U.S. taxes on overseas financing operations.

Other breaks included in the bill would continue 50 percent bonus depreciation for capital investments, let teachers deduct out-of-pocket expenses for school supplies, let homeowners exclude forgiven debt from income and provide incentives for businesses to hire veterans and other members of disadvantaged groups.

The measure emerged from the Finance Committee on a bipartisan voice vote last month. Even that agreement on the merits of the legislation couldn’t overcome the procedural feud on the Senate floor.

Medical-Device Tax

Republicans said they want the chance to offer amendments on any tax matter, starting with a proposal backed by some Democrats to repeal a 2.3 percent excise tax on medical devices.

Other amendments Senate Republicans want to offer include proposals from John McCain of Arizona to give companies a tax holiday for repatriating overseas profits, from Pat Roberts of Kansas to prevent the Internal Revenue Service from issuing new rules governing political nonprofit groups and from John Thune of South Dakota to make the research tax credit permanent.

“No matter the excuse, Republicans continue to wage war on common sense,” said Senate Majority Leader Harry Reid, a Nevada Democrat.

McConnell castigated the Democrats’ reluctance to let them offer and vote on amendments as “a gag order, a gag order on the American people who we represent.”

Senator Mark Kirk of Illinois was the one Republican voting with Democrats to advance the bill. Reid voted with Republicans thwarting it to preserve his right to bring the measure up again. Seven senators were absent.

‘This Impasse’

“I am going to do my very best in a bipartisan way with Senator Wyden to work out this impasse,” Utah Senator Orrin Hatch, the Finance Committee’s top Republican, said in a floor speech after the procedural vote. Any agreement will have to allow both sides to offer amendments, he said.

“This is a bill that virtually everybody in this body wants, to a more or less degree,” Hatch said.

The measure would add about $84 billion to the U.S. budget deficit over the next decade. Other tax breaks it would resuscitate include accelerated depreciation for motor sports tracks like those owned by International Speedway (ISCA:US) Corp., incentives for live theater productions and tax-preferred benefits for mass-transit commuters.

Groups such as the Business Roundtable support the measure. The Club for Growth, a Republican-aligned group that favors small government, opposes the bill as a giveaway to special interests.

‘Greatly Disappointed’

John Engler, president of the roundtable, said in a statement yesterday that he was “greatly disappointed” by the Senate’s failure to act.

“Urgent action on the tax extenders legislation is needed to halt increasing business uncertainty and to promote business investment and U.S. jobs,” said Engler, a former Republican governor of Michigan.

The Senate has taken a different approach from the Republican-led House of Representatives, which is picking individual provisions and voting to make them permanent, starting with the research tax credit.

“It’s more difficult to reconcile two very different versions of legislation, particularly when the scope of one chamber’s bill is much more narrow,” said Russ Sullivan, a former Democratic staff director for the Senate Finance Committee who is now an adviser at McGuireWoods Consulting in Washington.

President Barack Obama’s administration hasn’t issued a statement on the Senate plan. The administration said Obama would veto the House research-credit bill because it would increase the budget deficit.

The bill is S. 2260. Democrats want to add it to H.R. 3474.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Justin Blum


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