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November 26, 2014
White House Veto Threat Imperils Potential Extenders Deal
by Lindsey McPherson and Luca Gattoni-Celli

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The White House on November 25 issued a veto threat against a potential tax extenders deal congressional leaders had been discussing that would have made 10 provisions permanent while renewing others through 2015, raising questions about whether congressional leaders would continue to work toward a deal providing for any permanent policy.
President Obama "would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families," White House spokeswoman Jennifer Friedman said.

A Republican aide told Tax Analysts that GOP leaders made an offer on November 24 that included bipartisan, bicameral priorities. The aide said that although the offer was never formally agreed to, Republicans had "every reason to believe" that it would be by the end of the day November 25. However, over the course of the day, "serious fractures" emerged among the Senate Democratic caucus, followed by the veto threat from the White House, the aide said.

With no direction from the White House or Senate Democrats on what they need to agree to a deal, extenders negotiations are in limbo, the Republican aide said. A House Ways and Means Committee member, speaking on condition of anonymity, confirmed that the deal is not going forward as proposed because of the problems in the Senate.

If congressional leaders do not reach a deal to make some provisions permanent, the most likely outcome is a one-year retroactive extension of all the expired tax provisions that would last only through the end of the year, the Republican aide said.

The potential but now seemingly dead deal, as multiple congressional aides had described it to Tax Analysts, would have made permanent the following 10 provisions:

  • the research credit, simplified according to the provisions in a House-passed bill (H.R. 4438) to make the credit permanent but also including the provision from the Senate Finance Committee package giving start-up businesses the ability to claim the credit against payroll taxes;
  • section 179 expensing;
  • the state and local sales tax deduction;
  • the American opportunity tax credit, indexed to inflation after its renewal in 2018;
  • the employer-provided mass transit and parking benefits exclusion;
  • the reduced recognition period for built-in gains of S corporations;
  • the rules regarding basis adjustments to the stock of S corporations making charitable contributions of property;
  • the rule allowing some tax-free distributions from IRAs for charitable purposes;
  • the deduction for charitable contributions by individuals and corporations of real property interests for conservation purposes; and
  • the deduction for charitable contributions of food inventory.

The remainder of the potential package, which in total was expected to cost more than $400 billion over 10 years, would have mostly followed the extenders bill the Finance Committee approved this spring to renew through 2015 all but two of the 55 extenders that expired in 2013. However, the potential deal would have phased out the wind production tax credit, ending the incentive after 2017.

It also would have included House-passed modifications to the bonus depreciation provision that would expand the definition of qualified property to include owner-occupied retail stores and would lift restrictions to allow for more unused corporate alternative minimum tax credits, which businesses can claim in lieu of bonus depreciation, to be used for capital investment.

The White House declined to specify what it was seeking out of a deal, but it has previously issued veto threats against individual House-passed bills to make some of the business provisions permanent, arguing that doing so without offsetting the cost of those bills was fiscally irresponsible.

However, the White House has long assumed in its budget baseline that the 2009 stimulus tax provisions -- the American opportunity tax credit and expansions of the earned income and child tax credits -- would be made permanent.

Many congressional Democrats have expressed interest in ensuring that permanent expansions of the earned income and child tax credits are part of any extenders deal.

Skepticism of the potential deal that had emerged November 25 extended beyond the White House to Democrats in both chambers of Congress.

"The President's veto message is very clear in the priorities it sets forth, and we should go back to the drawing board and create a package that benefits working families, strengthens our economy, and creates a realistic path for tax reform," House Ways and Means Committee ranking minority member Sander M. Levin, D-Mich., said in a statement.

"We should not pass a lopsided deal with hundreds of billions of dollars in business tax relief and chump change for working families," Senate Finance Committee member Sherrod Brown, D-Ohio, said. "Yes, businesses should get the certainty they need -- but so too should working families living from paycheck to paycheck."

Levin also said the package's cost made it fiscally irresponsible, a view shared by House Budget Committee ranking minority member Chris Van Hollen, D-Md., a former taxwriter.

"I applaud the Administration for making clear that any deal to extend the so-called 'tax extenders' must be fiscally responsible and extend tax relief for working families," Van Hollen said in a statement, calling the potential deal unacceptable.

Follow Lindsey McPherson (@lindsemcpherson) and Luca Gattoni-Celli (@TheGattoniCelli) on Twitter for real-time updates.

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