Senators introduce retroactive tax extenders and disaster tax relief bill

Senate Finance Committee chairman Chuck Grassley, R-Iowa, and the top Democrat on his committee, Sen. Ron Wyden, D-Ore., introduced legislation Thursday to retroactively extend tax provisions that expired at the end of 2017 and 2018 through the rest of 2019 and offer disaster tax relief benefits to people and businesses affected by major disasters that happened last year.

The package contains 26 provisions that expired at the end of 2017 and three more that expired at the end of 2018. They include a number of energy-related tax credits for businesses and some popular tax breaks for individuals, such as the above-the-line deduction for qualified tuition and related expenses, the 7.5 percent floor in adjusted gross income for deducting unreimbursed medical expenses, and the treatment of mortgage insurance premiums as qualified residence interest. The tax breaks are perennially extended year after year despite the passage at the end of 2017 of the Tax Cuts and Jobs Act and past efforts by Congress to provide more permanence in the tax code.

“Congress needs to get out of this bad habit of regular retroactive extensions of these tax provisions,” Grassley said in a statement Thursday. “The whole point of these federal tax incentives is to encourage certain behaviors, especially investments in alternative energies, energy efficiency and transportation. The best way to do that is ahead of time, not retroactively. But it’s also the case that many of these industries made business decisions last year based on that reasonable expectation that they would be extended since it’s what Congress has consistently done in the past. I hope the House of Representatives acts soon since taxpayers affected by these expired provisions have to file their tax returns in the coming weeks. Thousands of jobs across the country depend on it.”

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Last November, Rep. Kevin Brady, R-Texas, who then chaired the House Ways and Means Committee, introduced a wide-ranging package of legislation during the lame-duck session of Congress combining the tax extenders, disaster tax relief, technical corrections to the Tax Cuts and Jobs Act, retirement savings provisions, and various reforms to the way the Internal Revenue Service operates (see House GOP releases tax package for lame-duck session). The package was soon scaled back, and in late December, the House passed a package containing tax breaks for biodiesel fuel and to make some technical corrections to the TCJA (see House passes year-end tax legislation). But the Senate never took up the bill as Congress became consumed in the partial government shutdown.

The package introduced on Thursday includes various disaster tax relief benefits, such as special rules allowing access to retirement funds, a special credit for employee retention during business interruption, a suspension of limits on deductions for certain charitable contributions, special rules for deductions for disaster-related personal casualty losses, and special rules for measurement of earned income for purposes of qualification for tax credits.

Some of the business tax extenders include tax breaks for biodiesel fuels, biofuel plants, fuel cell motor vehicles, two-wheeled plug-in electric vehicles, motorsports entertainment complexes, race horses, railroad track maintenance, energy efficient commercial buildings, construction of energy-efficient homes, and expensing rules for film, television and live theatrical productions. Many of the provisions benefit specific industries that are important to various lawmakers’ constituencies, and they are often extended on a short-term basis in order to keep the projected costs lower than a 10-year span.

More than 50 trade organizations, including the National Biodiesel Board, the American Trucking Associations and the National Corn Growers Association, among many others, sent a letter Thursday to congressional leaders asking for the expired provisions to be extended through 2019 as soon as possible. “Providing taxpayers with a predictable planning outlook as it pertains to tax rules is conducive to increased private sector investment and economic activity," they said. "Accordingly, we respectfully ask that you act to retroactively extend these expired tax provisions through 2019 on the first appropriate legislative vehicle.”

The short-term extensions contribute to business uncertainty, and they can result in amended tax returns when they are passed in the midst of tax season.

“It’s past time to kick the addiction to short-term tax policies, but until Congress is able to break this cycle for good, taxpayers deserve certainty about what they’ll owe,” Wyden said in a statement. “It’s important this is a two-year bill covering 2019, and it includes key renewable energy incentives I’m proud to fight for. Filing season for 2018 is already underway, so the Congress should act on this quickly.”

Grassley highlighted the importance of the provisions for extending the 7.5 percent floor for the medical expense deduction. “The bill also includes an extension of a proposal adopted last Congress that extends the 7.5 percent floor for itemized deductions of medical expenses,” he said. “Without this provision the floor on deductions will be 10 percent for 2019. This means that without this provision, individuals with chronic illnesses and high medical expenses would have to pay more for health care before they can deduct the expenses on their 2019 tax returns.”

He rejected the idea of using the House’s rules for offsetting the cost of extending the tax breaks with revenue-raising provisions, despite the growing budget deficit in the wake of the 2017 tax cut law. “The House has its pay-as-you-go, or PAYGO, rule,” said Grassley. “I have a long record of promoting budget responsibility, and I am as concerned about the deficit and debt as much as anyone. However, we also have bipartisan precedent for treating the extension of temporary tax policy like we treat the extension of annual spending policy. In neither case do we offset such extensions.”