Continue certain expiring provisions through CY 2011
The revenue code includes more than 80 “temporary” tax incentives, many of which have been extended one year at a time for a decade or more. The most significant in terms of revenue provides temporary relief from the Alternative Minimum Tax (AMT, a provision discussed elsewhere in this review). Most others are highly targeted subsidies that benefit business. The most significant of these in terms of revenue is the research and experimentation credit (also known as the research and development credit). Others encourage a broad range of investment from alternative energy to low-income housing.
The Administration baseline includes permanent extension of AMT relief. The 2009 AMT parameters—exemptions, rate brackets, and phaseout thresholds—are made permanent and indexed for inflation at a ten year cost of $659 billion. The president proposes making the research credit permanent at a cost of $83 billion over 10 years and extending a number of other expiring provisions for an additional year through 2011 with a one-year cost of more than $33 billion. These provisions include the optional deduction for state and local general sales taxes; the Subpart F “active financing” and “look-through” exceptions; the exclusion from unrelated business income of certain payments to controlling exempt organizations; the modified recovery period for qualified leasehold improvements and qualified restaurant property; incentives for empowerment and community renewal zones; and several trade agreements, including the Generalized System of Preferences and the Caribbean Basin Initiative. Keeping with his promise to phase out subsidies for fossil fuels made at the G-20 Summit in Pittsburgh, the president would allow incentives for the production of fossil fuels to expire as scheduled under current law.
Observers disagree over whether annually extending these tax benefits is good policy or whether it would be better to treat them as permanent provisions of the tax code. Proponents argue that temporary tax cuts allow for regular congressional review while critics say this review process has become a sham. Meanwhile, many beneficiaries act as if the provisions are permanent but congressional delay in reenacting them in a timely manner can lead to uncertainty and cause concern.
Additional Resources
Tax Policy Briefing Book: Taxes and the Budget: What are extenders?
Tax Extenders and Fiscal Responsibility, TaxVox, May 29, 2008
Estimated Revenue Effects of H.R. 4213, The "Tax Extenders Act of 2009" (JCX-59-09), Joint Committee on Taxation, December 2009
List of Expiring Federal Tax Provisions 2009-2020 (JCX-3-10), Joint Committee on Taxation, January 2010
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