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Things to Know About the Tax Extenders' History

Posted on July 10, 2014 by Lindsey McPherson

As Congress continues to debate tax extenders, lawmakers often mention how they have dealt with the temporary provisions in the past. Below are some important things to know about the history of extenders that are relevant to the debate.

1. Two-Year Retroactive Extensions Are Often Passed Late in Election Years

The focus of the current tax extenders debate is 55 provisions that expired at the end of 2013. Congress has often waited until the lame-duck session of an election year to pass legislation renewing the temporary provisions, although some extensions have been passed in October, before lawmakers head home for their final weeks of campaigning.

Extenders packages have most often provided for two-year extensions, with many provisions retroactively renewed through the beginning of the year after having been allowed to expire the previous year. Here's a look at the last decade's worth of extenders legislation:

  • The American Taxpayer Relief Act of 2012 (ATRA), signed into law January 2, 2013, renewed extenders, including 51 that are part of the current debate, through the end of 2013, providing for a retroactive extension for provisions that expired at the end of 2011.
  • The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, signed into law December 17, 2010, renewed extenders, including 40 that are part of the current debate, through the end of 2011, providing for a retroactive extension for provisions that expired at the end of 2009.
  • The Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008, and Tax Extenders and Alternative Minimum Tax Relief Act of 2008, signed into law October 3, 2008, renewed and created extenders, including 34 that are part of the current debate. The legislation, which renewed both expired and expiring provisions through 2009, also bailed out failing banks at the height of the subprime mortgage crisis.
  • The Tax Relief and Health Care Act of 2006, signed into law December 20, 2006, extended through 2007 provisions that expired the previous year and some scheduled to expire that year; extended through 2008 energy-related provisions scheduled to expire at the end of 2007; and created some new temporary tax measures. The provisions included 13 that are part of the current debate.
  • The Working Families Tax Relief Act of 2004, signed into law October 4, 2004, retroactively extended through 2005 a host of expired business tax provisions.

2. Extenders Are Often Attached to Larger Bills

In past years, lawmakers have attached extenders to larger pieces of legislation, many of which included other timely tax changes.

The primary purpose of ATRA was to make permanent most of the 2001 and 2003 tax cuts and fend off automatic spending cuts. But the legislation also dealt with other time-sensitive tax changes like the extenders. It also included a permanent alternative minimum tax patch and permanent estate tax with a 40 percent top rate.

The 2010 legislation included a two-year extension of the 2001 and 2003 tax cuts, a two-year AMT patch, a one-year payroll tax cut, and estate and gift tax changes. Extenders were just a small piece of the larger tax bill.

In 2008 the extenders were part of a massive economic rescue bill that permitted the Treasury secretary to buy up to $700 billion in troubled assets and allowed banks to treat as ordinary gains or losses income or loss from the sale of preferred stock issued by either Fannie Mae or Freddie Mac. Some House Democrats said the Senate's decision to attach the extenders made them decide to support the bailout bill, which the House had defeated as a stand-alone measure. The legislation also included an AMT patch.

Temporary tax provisions made up most of the 2006 law, which also included several changes designed to improve health savings accounts and many trade-related provisions.

In addition to renewing expired extenders, the 2004 law extended some of the provisions in the 2001 and 2003 tax cut bills that would have otherwise expired at the end of the year, including the expanded 10 percent income tax rate bracket, marriage penalty relief, and the child tax credit.

The fate of extenders is far less certain in 2014 because there are no tax cut extensions or AMT patches that Congress needs to pass. Extenders are one of the few tax matters Congress must address this year, and there are few other timely pieces of legislation lawmakers must pass in 2014 onto which the extenders could attach.

3. Congress Has Never Fully Offset Extenders Legislation

Paying for tax extenders has become a major point of controversy when it comes to a series of bills the House Ways and Means Committee has considered this year to make some tax extenders permanent. In recent years, Congress has never fully offset tax extenders legislation, but it also has not attempted to make the extenders permanent fixtures of the code.

ATRA included some offsets, but those were intended to cover the cost of delaying sequestration, not the extenders. No offsets were included in the 2010 legislation. The 2008 law only paid for a portion of the cost of the business and individual extenders, which drew complaints from some House Democrats at the time. The 2006 law included a few revenue-raising provisions, but they were intended to offset other portions of the legislation, not the extenders. The 2004 law was not offset.

4. Most Extenders Have Been Renewed at Least 3 Times

Of the 55 expired provisions that are the focus of the current debate, 39 have been around since 2008 or longer and thus have been extended at least three times, although some were extended as part of bills other than the ones mentioned above.

In the House, taxwriters are debating whether bills to make some extenders permanent should be offset, which would require those lawmakers to find revenue to make up for the 10-year cost of each provision.

Republicans argue that many of the provisions have been extended enough times without being paid for to cover the span of a 10-year budget window. That is true for the research credit, which the House voted last month to permanently renew, as well as bonus depreciation and the active financing exceptions under subpart F, both of which the Ways and Means Committee voted to permanently extend.

Other extenders that have existed for at least a decade include the above-the-line deduction for teachers' expenses, qualified zone academy bonds, the work opportunity tax credit, the Indian employment tax credit, accelerated depreciation for business property on Indian reservations, and the increase in the limit on cover-over of rum excise tax revenues to Puerto Rico and the U.S. Virgin Islands.

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