That is exactly why Camp is considering a baseline adjustment that would assume extenders are made permanent, which he says could free up roughly $1 trillion. "I think there's an opening to discuss it," Camp said, pointing to the baseline assumptions President Obama makes in his budget proposal as an example.
Obama's fiscal 2015 budget proposal assumes that the American opportunity tax credit and enhancements to the earned income tax credit and the child tax credit that passed as a part of the 2009 stimulus and that were extended through 2017 under the American Taxpayer Relief Act of 2012 are made permanent. Thus, the $154 billion cost of renewing those provisions through 2024, the remainder of the budget window, does not have to be offset elsewhere in the president's plan.
During a March 6 Ways and Means Committee hearing on the president's budget, Camp questioned Treasury Secretary Jacob Lew about the standard the administration used for deciding which extenders would be made permanent as part of its budget baseline. "We've tried for the last number of years to have the baseline reflect, as best as it can, the things that are, in practice, more permanent and really part of the ongoing challenge of funding government," Lew responded, adding, "It's a technical decision that I think is the right one."
Camp said a strong case could be made that other tax extenders -- such as the research credit and section 179 expensing -- that have been part of the code a lot longer than the stimulus provisions, should be made permanent as well.
Lew said the administration supports a tax reform effort that will create permanent policy and that the administration is happy to discuss what should be considered a baseline assumption versus what should be considered a policy change. "The challenge we've had with the extenders is there's been an ongoing debate about which ones to extend and whether or not they're permanent," he said. "And we believe that the tax credits we put in the [administration's] baseline are items that have a different character."
In its February 26 release announcing Camp's draft, the Ways and Means Committee asked for feedback on whether the committee should include a permanent extension of expired or soon-to-expire tax provisions in the plan's revenue baseline and which tax extenders should be counted in the baseline.
It's not an uncommon practice to look at extenders as permanent policy despite the official congressional scorekeeping rule of following current law and assuming they will expire as scheduled. Even though the provisions are typically renewed only on a biannual or annual basis, many have been around for years and are unlikely to disappear for good anytime soon. Because so many lawmakers view extenders as current policy, they are rarely fully paid for upon their renewal, which Congress has often done retroactively in recent years.
The administration is not the only group to use a baseline that predicts future congressional action on tax policy. Senate Democrats made the same baseline assumption in their fiscal 2014 budget resolution as the administration did. And the Congressional Budget Office usually presents an alternative fiscal scenario in its annual budget outlook that assumes extenders are permanently renewed.
But there's a difference between presenting an alternative scenario or making an assumption in a budget proposal and trying to adjust the baseline in legislation.
"Assuming the tax extenders (a.k.a. tax expirers) are permanently renewed is reasonable when constructing a current policy baseline that's meant to illustrate the fiscal challenges we face. Many analysts do that," Donald Marron of the Urban Institute told Tax Analysts. "For purposes of congressional budget scorekeeping, however, I don't think it makes sense. If Congress wants to extend them without paying for them, it should do so transparently and openly, not by gaming the baseline."
A gimmick is what Ways and Means member Jim McDermott, D-Wash., called the idea. Republicans "are going to use every gimmick under the sun to do what they can without raising taxes," he said. "Ultimately, you have to pay for the gimmicks."
At least one GOP Ways and Means member was also wary of the idea. "I don't know about that," Rep. Kenny Marchant, R-Texas, said when asked what he thought about assuming that extenders are made permanent in a tax reform baseline. "I mean one of the big pluses of tax reform to me was the fact that we wouldn't have just this whole mass of extenders every year. That whatever we deemed was good law we would put in the permanent tax code and that would be the way it was."
Including extenders in the baseline means they are not part of the overall legislative plan, requiring Congress to act later to fulfill the budgetary assumption.
Or Common Sense?
But others argue that action on extenders is inevitable and that assuming that they are going to lapse, at least permanently, doesn't make sense. Alan Viard of the American Enterprise Institute said that assuming renewal of the extenders does not reflect current law but it is a good description of current policy that many people use to specify the baseline. "Although any baseline is somewhat arbitrary, it generally makes sense to use one that corresponds to some notion of current policy," he said.
Curtis Dubay of the Heritage Foundation said that congressional scorekeepers should have included extenders in the baseline a long time ago. "Assuming they expire each year creates this backwards scenario where Congress is forced to assume it has to pay for not raising our taxes," he said.
Even some in the business community support the idea. John Engler, president of the Business Roundtable, told reporters during a February 27 conference call that Camp's draft provides an opportunity for lawmakers to look at scoring in terms of current policy, which he said is the better and more accurate way to go. He questioned why lawmakers should have to pay for making the research credit permanent when the provision has been in the code since the 1980s -- extended 14 times.
Engler argued that lawmakers have used the current policy baseline before, pointing to 2013 when Congress made the 2001 and 2003 tax breaks permanent for families earning less than $450,000 and individuals earning less than $400,000. At the time, the Joint Committee on Taxation estimated that making those tax cuts permanent would cost $3.9 trillion over 10 years using a current law baseline. The Obama administration, however, argued the JCT estimates showed that under a current policy baseline the bill would raise $620 billion in revenue.
Some Ways and Means members are also interested in a current policy baseline. Rep. Kevin Brady, R-Texas, said he supports it and that the money saved from not having to offset extenders' renewal could be used to further the committee's goals of simplifying the code and lowering the rates.
"If we get that money, then we can do a lot more with tax reform," committee member Charles W. Boustany Jr., R-La., said. "We were constrained by the numbers. We could actually do better."
Camp said he'd like to have a debate and get feedback on how that extra money could be used, offering a few examples: "You could use it for rate reduction. You could use it for cost recovery. You could use it for debt [reduction]. You could use it for different policies."
During the Ways and Means hearing, Camp also questioned Lew about whether there are opportunities to reform and simplify the code, such as consolidating education tax credits, that can be done without having to resolve the question of whether reform should raise revenue. Camp cited a bipartisan proposal from Ways and Means members Diane Black, R-Tenn., and Danny K. Davis, D-Ill., to consolidate four existing education tax incentives into one credit, a revamped, permanent version of the American opportunity tax credit. Camp included the proposal in his draft.
Lew said there is always room for conversation about making the tax code more efficient, effective, and easier for people to use, but he added that the debate surrounding comprehensive reform is inherently tied to the revenue question.
Regarding the education tax provisions, Lew said simplification is a desirable goal but the administration has different objectives that are achieved through different areas of the current code, and it has questions about Camp's plan to modify the American opportunity credit. Lew said to Camp, "The challenge and the conversation we look forward to having with you is how to get the balance right so that we still are encouraging the kind of behavior that we think makes a difference for the economic future of both families and the country."
Asked later how seriously he was looking at splitting the education reform proposal off from his comprehensive plan, Camp described it as a "preliminary discussion" and said he was just seeking to get Lew's viewpoint on the matter.
Consolidating education credits "is an example of the kinds of issues where we could simplify the code for hardworking taxpayers," Camp said, adding, "I'm interested in pursuing discussions on that level."
Camp was also asked about how his tax reform plan would be incorporated into the budget proposal being drafted by taxwriter and House Budget Committee Chair Paul Ryan, R-Wis. "I'm going to work with him on what goes in his budget, and we're just beginning discussions," Camp said.
However, Camp hesitated when asked about the possibility of Ryan -- the presumed front-runner to take over Ways and Means when Camp's term as chair is up at the end of the year -- endorsing his draft. "I'm not sure endorsing in the budget is exactly the right approach, so I'm going to work through that," he said.
Luca Gattoni-Celli and Meg Shreve contributed to this article.
Follow Lindsey McPherson (@lindsemcpherson) on Twitter for real-time updates.
About Tax Analysts
Tax Analysts is an influential provider of tax news and analysis for the global community. Over 150,000 tax professionals in law and accounting firms, corporations, and government agencies rely on Tax Analysts' federal, state, and international content daily. Key products include Tax Notes, Tax Notes Today, State Tax Notes, State Tax Today, Tax Notes International, and Worldwide Tax Daily. Founded in 1970 as a nonprofit organization, Tax Analysts has the industry's largest tax-dedicated correspondent staff, with more than 250 domestic and international correspondents. For more information, visit our home page.
For reprint permission or other information, contact firstname.lastname@example.org