“Tax extenders” are overlooked, underpublicized, and painfully arcane, known by a name that doesn’t even make sense—they should be called “tax cut extenders,” because extending the duration of temporary tax cuts is what they do.
In practice, tax extenders are legislative favors, often slipped into folds of federal bills notable for funding bigger-ticket items—such as military programs, disaster relief, infrastructure overhauls.
And despite President Donald Trump’s promise to drain the Washington “swamp,” elected officials and lobbyists conceived a new round of extenders, where they became law inside the bloat of last month’s 652-page budget bill with little public input.
A Center for Public Integrity investigation of more than 30 of these provisions reveals they benefit narrow special interests that know how to work the system—from racehorse owners to StarKist tuna canners to connoisseurs of two-wheeled electric vehicles.
Congress’ Joint Committee on Taxation estimates that tax extenders and related temporary tax provisions lawmakers passed as part of the February budget deal will cost the U.S. Treasury about $16 billion in lost revenue over a decade.
Given that the Congressional Budget Office predicts the federal government’s overall budget deficit will soon balloon, potentially necessitating expensive borrowing and draconian budget cuts, these are funds the federal government can ill afford to lose, particularly when one considers the $1.5 trillion tax cut Congress passed in December.
And yet, tax extenders—often retroactive ones—have endured little outcry.
On Wednesday, a House Ways and Means subcommittee will examine whether this is a sound way to do the people’s business. The answer may well be no. But if past is indeed prologue, these favors for the favored few are unlikely to soon disappear.
So how did we get here?
Tax extenders and similar temporary tax provisions aren’t new. Under both Democratic and Republican direction, congressional lawmakers have created and renewed a slew of them this short century.
Nor, many lawmakers say, are tax extenders inherently awful. They contend it makes defensible sense for Congress to create certain tax breaks to achieve some policy goal, and then terminate them—or make them permanent—soon thereafter.
Take the Great Recession late last decade and its economy-crushing aftermath. Lawmakers responded by enacting a slew of tax benefits with expiration dates. The goal: Let people and businesses keep more of their money in the hope they’ll spend it, thereby jump-starting economic activity. When the economy recovers, the tax breaks fade away.
After major hurricanes ravaged the U.S. Gulf Coast in 2005, Congress passed the Gulf Opportunity Zone Act. The act was filled with temporary tax relief—for housing, education, demolition costs, environmental remediation—for affected areas.
But temporary tax breaks aren’t unique to disasters, whether natural or economic.
Instead, Congress has authorized them for a menagerie of reasons, often at the behest of corporate or trade-association lobbyists with the connections and financial means to bend lawmakers’ wills to their own and lubricate their pleas with a reliable flow of campaign cash.
Example: A “nuclear production tax credit” buried on page 90 of February’s budget bill. It’s poised to provide roughly $1 billion in benefits to Southern Company subsidiary Georgia Power alone—and seems unlikely to benefit anyone else.
Southern Company has aggressively courted federal officials, spending more than $106 million on federal lobbying efforts since 2010, according to the Center for Responsive Politics. Its executives and political action committee have also lavished lawmakers with campaign contributions and, in the case of Trump, spent $100,000 last year to help fund his inauguration festivities.
“Sure enough, we were able to preserve our production tax credits,” Southern Company President Thomas A. Fanning boasted last month in a call with investors.
In December 2010, the bipartisan National Commission on Fiscal Responsibility and Reform—colloquially, the Simpson-Bowles Commission, after its co-chairmen—warned the body politic of what it considered dangerous government giveaways.
In a 65-page report, the commission excoriated special-interest tax carve-outs and called on Congress to axe them.
“Corporate tax reform should eliminate special subsidies for different industries,” the Simpson-Bowles report stated. “Abolishing special subsidies will also create an even playing field for all businesses instead of artificially picking winners and losers.”
But the 18-member Simpson-Bowles commission, created by then-President Barack Obama and primarily composed of members of Congress, failed to attain the 14 votes needed to formally endorse the report and send it to Congress for a vote. A subsequent House bill modeled after the Simpson-Bowles report suffered greater ignominy, with most members voting it down.
With nothing restraining them, federal lawmakers continued including tax extenders in their legislation—often renewing the same breaks year after year alongside permanent tax breaks corporations lobbied hard to obtain.
It appeared for a moment, in 2015, that Congress had to some extent soured on tax extenders, making permanent some temporary tax breaks while seemingly condemning others to expiration after 2016.
That moment, however, proved fleeting.
Tax extenders slithered back when, in mid-December, Senate Finance Committee Chairman Orrin Hatch (R-UT) unveiled what amounted to an early Christmas gift for special interests in the form of the Tax Extender Act of 2017. Five Republican senators—Chuck Grassley of Iowa, Mike Crapo of Idaho, John Thune of South Dakota, Pat Roberts of Kansas, and Johnny Isakson of Georgia—signed on as co-sponsors.
Hatch’s staff at the time defended the bill as something that would “help families, individuals and small businesses in Utah and across the country.” Also: Hatch’s bill likely wouldn’t have been necessary had Congress addressed tax extenders in the December tax law it passed.
Despite signing on as a co-sponsor, Grassley professes to look dimly upon tax extenders and says he wants Congress to determine, in advance and not at the last moment, the status of federal tax provisions. That certainly will allow “businesses and individuals to know what to expect and adjust accordingly,” he said.
But that’s “not always possible with political realities,” said Grassley, who voted for the February budget bill and noted that congressional inaction in 2017 led to industries that had previously received tax extenders counting on retroactive extensions.
“Ultimately, retroactive extensions are better than no extensions,” he said.
While some fiscal conservatives and waggish liberals initially protested, it’s difficult to convince many lawmakers to block a relatively small tax break that may be incredibly important to a single member or delegation.
Congress also found itself beset with bigger battles late last year—namely, President Trump’s tax bill (signed Dec. 22), a stop-gap spending bill (signed Jan. 22 after a three-day government shutdown), and the Bipartisan Budget Act of 2018 (signed Feb. 9 after another, shorter government shutdown) dominated by debate over immigration and defense spending.
Few on Capitol Hill therefore paid much notice last month to the “extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities” and its tax extender brethren contained in Hatch’s proposed act, which hitched a ride onto the February budget deal—and became law in slightly altered form. Few across Washington, D.C., argued that such tax relief, if meritorious, should have been cooked into more appropriate legislation, namely Trump’s tax overhaul from December.
Meanwhile, across the nation, the term “tax extender” teetered on the tips of no tongues. Newspaper headlines and cable news chyrons instead shouted about national debts and FBI memos and Trump staffers quitting and Russians infiltrating U.S. elections.
Amid this tumult, tax extenders reaffirmed themselves as the “cockroaches of the Washington policy environment,” said Steve Ellis, vice president of nonpartisan budget watchdog organization Taxpayers for Common Sense. “They seem to always survive.”
Tax extenders share the commonality of cost: When the federal government gives a company or industry such a tax break, it means the federal government is, in effect, losing money from taxes it won’t be collecting.
This isn’t folly, necessarily. Temporary tax breaks may spark economic activity, prompt businesses to invest or help pump money into communities. They’re not created equally, nor are their results the same.
“Some provisions may warrant being made permanent, while others may require a phase-out and maybe others should be ended now,” Grassley said.
And at least a few temporary tax breaks passed last month beg for sympathy.
Could anyone with half a heart argue against helping low-income areas of Puerto Rico, an already depressed U.S. territory where, because of Hurricane Maria last year, tens of thousands of people still don’t have reliable electricity or running water?
Who, really, would fault the federal government for helping college students pay for school, or underemployed Native Americans find jobs, or mine-rescue teams obtain better training?
Republican or Democrat, most politicos agree on the merits of efforts such as these.
The route they took toward becoming law? That’s another matter.
The government typically uses tax incentives to prod a corporation or industry to behave a certain way.
But many tax extenders in Congress’ latest litter are retroactive, the benefits extending backward, not forward—something not unprecedented, but more than a little strange, since Congress can’t incentivize behavior that has already occurred.
Not even a procedural speed bump, such as a Senate committee hearing, stood in the tax extenders’ way before lawmakers largely incorporated them into the February budget bill.
“It’s just shipping somebody money,” said Grover Norquist, president of conservative activist organization Americans for Tax Reform. “Some tax extenders are good tax cuts. But some become vehicles for icky stuff that would not stand on its own. Retroactivity—it’s even more questionable.”
That Republicans extended the lives of tax extenders—the GOP controls both the House and Senate—makes the situation even more curious.
Republicans, after all, vowed in their 2016 party platform to “eliminate as many special-interest provisions and loopholes as possible and curb corporate welfare.” The platform likewise advocates, in the name of “fiscal sanity,” for a constitutional amendment requiring federal budget balancing to “prevent deficits from mounting to government default.”
Retroactive tax provisions will ostensibly make federal budget imbalances widen, not narrow. And even the Joint Committee on Taxation’s cost peg of $16 billion plus may underestimate the real fiscal effect, as some breaks are likely to be renewed year after year after year.
That angers some Republicans who say their party must not lose its mantle of fiscal conservatism.
“Tax extenders? Disappointed? Very,” said Michael Steele, the Republican National Committee’s chairman from 2009 to 2011. “Republicans—they made a promise to the American people that they would not drive us into debt.”
Lamented Rep. Walter Jones (R-NC), who in February voted against the budget bill that contained new tax extenders: “The deficit hawks seem to be staying in the nest.”
Some tax breaks winked into existence years, even decades ago with a set date for expiration.
Tax extenders extended their lives when Congress declined to make them a permanent part of tax policy but didn’t want to kill them, either.
In 1993, the federal government approved a Native American employment tax credit, which gave private businesses on Indian reservations up to a $4,000 credit per employee hired—as long as the worker is a Native American or a spouse who lives on Indian land and makes up to $45,000 a year.
The tax credit should have expired in 2003. But Congress has since extended the break every or every other year, normally retroactively, leaving businesses unclear about whether the benefit will last. The Bipartisan Budget Act of 2018 allowed the provision to retroactively cover businesses through 2017.
The American Jobs Creation Act of 2004 allowed film and television production companies to immediately deduct up to $15 million of their expenses for certain movies and television shows, which foreign countries were wooing with attractive incentives. The tax benefit was supposed to expire in 2008.
It didn’t. And 10 years hence, Congress has consistently extended the benefit on a temporary basis, most recently in February. It now offers the benefit to theater production companies, too.
One tax extender contained in the February budget bill allows the cost of purchasing a racehorse to be depreciated over three years, regardless of when the racehorse begins training. Without the tax extender in place, racehorses placed into service before the age of two were depreciated over seven years.
Why this matters to racehorse owners: A faster depreciation schedule means they can claim higher expenses early on and lower their short-term taxable income. Racing advocates argue there’s a public benefit to all of this: Horse-racing events become more affordable and accessible.
Among the most esoteric tax provisions is a tax credit of 10 percent, capped at $2,500, for the purchases of two-wheeled plug-in vehicles that weigh less than 14,000 pounds and are capable of traveling at least 45 miles per hour on roads.
Congress’ Joint Committee on Taxation predicts the federal government will lose about $500,000 in revenue annually because of the tax credit—not much, all considered. But the credit is worth enough to Zero Motorcycles, Arcimoto, and Polaris Industries to all hire Duane Gibson of GovBiz Advantage to lobby Congress, paying his company $225,000 combined in 2017, according to federal lobbying records.
Hatch’s Senate Finance Committee spokeswoman, Katie Niederee, says the senator has a track record of vetting tax extender policies in his committee. Hatch’s December 2017 bill, she noted, was the basis for “bipartisan provisions that just became law” while acknowledging “there’s still work to do.”
The Trump administration “is concerned with future extensions of special interest tax deductions and benefits in the wake of tax cuts and reforms that were enacted in December 2017,” Trump’s Office of Management and Budget wrote last month in a statement of administration policy. Those concerns weren’t enough to keep Trump from signing the budget bill, which included a host of military spending Trump considers necessary for national security.
Some lawmakers want the process that led to these tax provisions to end.
“A real tax reform process would have considered the expired tax provisions, and dealt with them in a fiscally responsible way,” said Sen. Mark Warner (D-VA), who serves on the Senate Finance Committee. “Instead, Republicans punted on the hard choices we were sent to Congress to make… The use of expiring tax provisions also masks the true deficit harm, since Congress has repeatedly extended these provisions without paying for them.”
On this point, Warner finds himself with two unlikely allies: Americans for Prosperity and the Freedom Partners, two free-market advocacy powerhouses backed by billionaire industrialists—and preeminent GOP bankrollers—Charles and David Koch.
In a joint letter to Congress in January, prior to the Bipartisan Budget Act of 2018’s passage, the groups urged lawmakers to “oppose any effort to insert corporate welfare provisions into the newly reformed tax code” and to “stand strong against the special interests” that benefit from tax extenders.
Congress ignored them.
Will tax extenders live on in their current form when Congress next entertains a barrage of pleas and prodding from special interest lobbyists? Will Republicans and Democrats agree, once and for all, that there’s a better way to write tax policy?
Peering into the Magic 8 Ball of politics: “Reply hazy, try again.”
That’s because changing the way tax extenders work appears low—very low—on Congress’ priority list, even if they’ll eventually have to deal with temporary tax provisions contained both in February’s budget bill and December’s tax reform law.
From immigration reform and welfare reform to transportation and trade, big-bore initiatives are likely to dominate lawmakers’ agenda at a time when most everyone in the House, and about one-third of Senate members, are already preoccupied with their own re-election campaigns.
And godspeed to any do-gooder who believes tax extenders will intrigue and outrage Americans at the level of any of 100 contemporary political dramas: a possible Trump-Kim Jong Un summit, the president’s alleged affair with porn star Stormy Daniels, the parade of top officials walking out the White House door.
Discussion of tax extenders won’t disappear completely. Hatch, for his part, “will keep working with his colleagues to determine the best path forward,” Niederee said.
His time, however, is limited: Hatch isn’t seeking re-election, and he’ll be a former senator come January. Meanwhile, “Senate Republicans have not engaged with Democrats on substantive conversations regarding a new round of extenders,” said Rachel McCleery, a Senate Finance Committee spokeswoman for Sen. Ron Wyden of Oregon, the committee’s ranking Democrat.
Some small measure of drama could come Wednesday, when House Ways and Means Tax Policy Subcommittee Chairman Vern Buchanan (R-FL), hosts a public hearing entitled, “Post Tax Reform Evaluation of Recently Expired Tax Provisions.”
Catchy title no, although Buchanan last month promised to use the hearing to affect change “by thoroughly examining the policy underlying temporary provisions often called ‘tax extenders.’” Buchanan’s been coy since, his office not replying to several requests for comment.
The status quo is just fine for industrial interests that have relied on the de facto permanence of tax extenders that benefit them. It’s also good news for hired-gun lobbyists who make money on them. Were Congress to make tax extenders permanent, or do away with them altogether, lobbyists for special interests seeking the extensions would have to find something else to lobby on. Don’t expect any calls for reform from their camps.
Alan Simpson, the former Republican senator from Wyoming and one half of the Simpson-Bowles Commission leadership duo, said tax extenders and their ilk are emblematic of Congress’ broader inability to control spending, curtail borrowing and operate within the federal government’s means.
Until the federal government figures this out, Americans—particularly the nation’s youngest—should be frightened about their financial futures, he said.
“Congress? They don’t give a rat’s ass about the next generations,” Simpson said. “The losers are the grandchildren of the Americans who are in their 20s and 30s. When they’re 65, they’ll be picking grit with the chickens.”
With reporting from Carrie Levine, Sarah Kleiner, R. Jeffrey Smith, Kytja Weir, John Dunbar and Ashley Balcerzak
The Center for Public Integrity is a nonprofit investigative journalism organization based in Washington, D.C.