Legislators Await Final “Big Ticket” Spending, Tax Items To End This Year’s Congressional Session

December 9, 2015

Earlier this year, Congress set its proposed annual adjournment deadline for Friday, December 11. But it is now too late for them to meet that deadline, and the First Session of the One Hundred and Fourteenth Congress is now stretching inevitably into next week.

There are two remaining big-ticket items on the “must-pass” list: a $1.1 trillion omnibus appropriations package for fiscal year 2016, and some kind of extension of the tax benefits that expired at the end of fiscal year 2014. (Almost all of the tax extenders are of deductions and credits that you file for after the tax year is over, so retroactive extension of them works.)

Some kind of continuing appropriations must be signed into law by midnight on Friday night (December 11) to avoid a partial government shutdown starting on Saturday. As of this writing (late Wednesday afternoon), the timing is uncertain – ideally, the text of the next CR would be released tonight and allow for a House vote on Thursday or Friday. As long as the CR does not go past next Friday (the 18th) and is otherwise “clean” of new provisions, a great deal of Democratic support is likely, which could enable the next CR to be considered on the House floor by unanimous consent or under the expedited suspension of the rules procedure that requires a two-thirds vote. (Update to online edition: the next CR is expected to go through midnight on Wednesday, December 16.)

There no hard deadline for the tax extenders package – the real deadline is when the IRS has to print forms and rule books for tax year 2015 returns, which is usually in late January. But since new sessions of Congress are usually slow to start, finishing tax extenders before Christmas is preferable.

The appropriations package and the tax package appear to be linked – if not formally (in the same bill), at least in the sense that Democrats won’t sign onto one until they know what is in the other. As far as legislative vehicles go, the omnibus appropriations package will likely start in the House as a House substitute for the Senate substitute for the Military Construction/VA appropriations bill (H.R. 2029), which has the virtue of being the only FY 2016 general appropriations bill to pass the Senate. The legislative vehicle for the tax extenders package is unclear.

(There had been talk that the conference report on the Customs and trade bill would include either the tax extenders or the omnibus appropriations, but that report was filed at 3:30 p.m. on Wednesday and does not contain either.)

Given that the appropriations package funds the entire discretionary side of the government at $1.1 trillion, it may be surprising to learn that the dollar amounts really aren’t the problem. Instead, the holdup appears to be several dozen limitation amendments “none of the funds in this Act can be used for X, Y, or Z,” many of which would limit the ability of the Administration to issue specific regulations or enforce specific policy. (Syrian refugees, EPA rules, you name it.) Behind-the-scenes negotiations with Democrats have not been going well by all accounts.

With regard to tax extenders (the ongoing issue of which is well-summarized in this Congressional Research Service report), the real question is whether Congress will go big or go home. Going big pertains to a package under discussion that would make many business tax deductions and credits permanent but which would also expand into postponing unpopular Obamacare taxes, increasing tax code welfare benefits for the poor, lifting the ban on U.S. crude oil exports, and other items of new policy (well summed up here).

Going home involves abandoning the big bill and moving to Plan B. On the evening of December 7, new House Ways and Means Committee chairman Kevin Brady (R-TX) released the text of the Republican backup plan in the event that the deal on the larger tax package does not come together – a more simple two-year extension of most of the provisions that expired at the end of 2014. The legislative text of that proposal is here, a section-by-section summary is here, and the preliminary score from the Joint Tax Committee is here. The ten-year cost of the two-year extension of the tax breaks: $108 billion. This is similar to what Congress has done in past years – extend the expiring tax provisions by a year or two at a time.

With regards to transportation, the Brady two-year package does include the extension of parity for employer-provided mass transit benefits with parking benefits (costing $144 million – $110 million in 2016 and $34 million in 2017) and an extension of the railroad track maintenance tax credit (costing $428 million – $288 million in 2016 and $144 million in 2017).

The whole list of “temporary” tax credits and deductions which regularly get renewed does make one long for tax reform – it contains items like “Classification of certain race horses as 3-year property,” “7-year recovery period for motorsports entertainment complexes” and “Temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon” to Puerto Rico and the Virgin Islands”.

But the big money is in permanent deductions and credits, not the temporary expiring provisions. As luck would have it, this week the Joint Committee on Taxation updated their regular report on the total cost of all federal tax expenditures, which can be downloaded here.

Three of the items in the report will be familiar to followers of the surface transportation debate, but in particular, it draws attention to the fact that once something becomes a permanent part of the tax code, the cost becomes invisible unless people actively seek it out (whereas the money spent through the contract authority authorization or annual appropriations is extremely visible).

In particular, each cent of increase in federal gasoline and diesel fuel taxes dedicated to the Highway Trust Fund would raise an extra $1.2 billion per year or so for – or it would if Congress ever worked up the will to increase it. But an increase of a few billion dollars per year in a high-visibility tax is too politically difficult for Congress to consider. Meanwhile, a permanent provision of the tax code effectively pays $5 to $6 billion per year for employers to give parking spaces (and transit benefits) to their employees, but since that is all part of the below-the-radar permanent tax code, how may readers had any idea of what ballpark that numerical total was?

JCT also reported that the ongoing cost of supporting private activity bonds was about $1 billion per year in revenue foregone, and that the annual cost of servicing the $181 billion in Build America Bonds issued in 2009-2010 as stimulus spending is about $3.2 billion per year in revenue foregone.

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