What's in Store For Tax Legislation in 2014


In the best of times, reforming the nation's tax code is an enormous challenge, and in the mid-term election year of 2014, the chance of passing comprehensive tax reform has evaporated. The tax legislation that will pass the Congress and be signed into law will most likely be a much less ambitious but very important tax extenders bill.

The tax writing committee chairmen, Sen. Max Baucus (D-MT) and Rep. Dave Camp (R-MI), have forcefully worked to move tax reform legislation through the Congress, issuing discussion drafts and urging their colleagues to join them, but that by itself is not enough. Tax reform has a chance only with the support of bipartisan congressional leadership and the strong engagement of the president. Neither congressional leaders nor President Obama has made tax reform a priority nor have they made the political investment that will be essential to get the job done.

Early this year the focus will be on the all-important tax extenders. There are about 55 provisions in the Code that expired at the end of 2013. Some of these provisions are extremely important to the business community and the nation's economy. For example, the expired Production Tax Credit (PTC) is critical to the renewable energy industry and the Research and Development Tax Credit (R&D) has become a mainstay for large as well as small businesses. Allowing these provisions to expire is not new. The R&D tax credit has expired eight times and has been extended fourteen times.

The extenders have been a central part of Chairmen Baucus and Camp's strategy. They are popular with rank and file members as well as the business community. They have become bargaining chips in developing tax reform legislation. They get votes, and they garner support. Without the extenders, proponents of tax reform are greatly disadvantaged.

The most important sign that tax reform has been pushed aside has been the actions of Senate Majority Leader Harry Reid. Senator Reid has a history of saving tax extenders, especially energy tax extenders, at the last minute. He is the industry's most important champion. Last month he introduced legislation extending all of the expired provisions for another year. The bill is retroactive, insuring there will not be a gap in the tax breaks.

The only question is how an extenders legislation package will move forward and when it will be considered by the House and Senate. The odds are good that the Senate will act first. Senator Reid could bring a stand-alone bill to the Senate floor or allow it to move through the Finance Committee first. Action in the House is more complicated. There will be debate about off-sets, and there are a growing number of Republicans who oppose extending the PTC for renewables. Regardless of the obstacles and the objections, the best bet is that in 2014 a tax extenders bill will pass the Congress and be signed into law by the president. Tax reform will have to wait for another day.

-Michael A. Andrews

Topics:  Legislative Agendas, Tax Extenders, Tax Reform

Published In: Elections & Politics Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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