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266 IRET Congressional Advisory 1 (2010)

handle is hein.taxfoundation/iretcgadv0263 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies thait will promote growth and efficient operation of the market economy. June 9, 2010 Advisory No. 266 EXTENDERS BILL (H.R. 4213) UP FOR ACTION IN SENATE The House of Representatives has passed an extenders bill, H.R. 4213, formally named the American Jobs and Closing Tax Loopholes Act of 2010. On June 8, the Senate leadership introduced its own proposal, which makes modest changes to the House version of H.R. 4213. The bill would extend a large number of expiring tax and spending provisions. The bill can be summarized briefly. * It renews a large number of expiring business tax provisions for 2010, including the R&D credit, protection of financial service firms' income earned abroad from Subpart F passive income penalties, and extends or provides new tax breaks for many types of energy-related projects. * It renews individual tax provisions for charitable contributions from retirement plans, energy saving activities, and certain above the line itemized deductions for state and local taxes and tuition, and dozens of other minor subsidies and credits, many in the energy saving area. * It reduces various federal limits on state and local issuance of tax-exempt bonds and encourages additional state and local borrowing for infrastructure and other spending. * It extends the full federal funding of additional weeks of unemployment compensation of up to 99 weeks of benefits enacted earlier in the recession. * It includes a doc fix to postpone cuts in the reimbursement rates paid to physicians for Medicare services, and it extends a temporary additional level of federal matching support for state Medicaid programs. The extenders bill is a bad piece of legislation for many reasons. The bill would renew several important existing tax provisions that mitigate the tax burden on capital formation and business activity. Two of the most important are the R&D credit and the protection of financial service firms' income earned abroad from subpart F passive income penalties. These provisions should be extended. However, the extenders bill also contains many wasteful provisions that should be dropped. The desirable provisions should be made permanent. To the bill's discredit, the good provisions would only be extended for another year. Temporary extensions help Congress play its usual games with the budget totals. Regrettably, the revenue offsets chosen to pay for the extensions are permanent tax increases. Every year, the extenders charade forces taxpayers to accept permanent tax increases in exchange for temporary deferral of other pending tax increases. It is a bad bargain for taxpayers and the economy. The estimated revenue cost of the key tax relief extensions is overstated. Without the tax provisions, the activities receiving the tax relief would be restructured or not undertaken. Elimination of the provisions would yield far less revenue than indicated by the supposed cost of keeping the incentives in place. Therefore, the need for revenue offsets is overstated. g~*m 6 I 8g~ 6

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