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Extend Certain Expiring Provisions through 2013

The revenue code includes dozens of "temporary" tax incentives, many of which have been extended one year at a time for over a decade. The most significant in terms of revenue provides temporary relief from the alternative minimum tax (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 and discussed elsewhere in this review). Others encourage a broad range of activities such as purchases of energy efficient products.

The "adjusted baseline" used in the president’s budget in place of current law assumes permanent extension of AMT relief. The 2011 AMT parameters—exemptions, rate brackets, and exemption phaseout thresholds—are made permanent and indexed for inflation after 2011 at a 10-year cost of $1,898 billion. The president’s budget also includes a separate proposal to enhance the research credit and make it permanent, at a cost of $109 billion over 10 years.

In addition to these proposals to make some expiring provisions permanent, the president’s budget would extend a number of other expired or expiring provisions through 2012, with a 10-year cost of $26 billion. These provisions include various energy-related incentives, the optional deduction for state and local general sales taxes, the Subpart F “active financing” and “look-through” exceptions, and expensing or accelerated cost recovery for various forms of investment.

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 that in practice no real review occurs. Meanwhile, although many beneficiaries act as if the provisions are permanent, congressional delay in reenacting them in a timely manner can lead to uncertainty and weaken some of the intended incentives. In addition, if these provisions are never allowed to lapse, as past history would suggest, the practice of proposing short-term extensions with an expectation they will be renewed again substantially understates their true long-run budgetary cost.

Additional Resources

Tax Policy Briefing Book: Taxes and the Budget: What are extenders?
Tax Extenders and Fiscal Responsibility, Tax Vox, May 29, 2008.
Whatever Happened to All those Expiring Provisions? TaxVox, December 29, 2011.
List of Expiring Federal Tax Provisions 2011-2022 (JCX-1-12), Joint Committee on Taxation, January 6, 2012.