Tax Breaks Getting Harder to Kill

The struggle in the Senate to get the tax extenders and unemployment benefits legislation passed is due in part to the stubborn refusal of lobbyists to let many of the 50-odd tax breaks ever truly expire.

Many of those tax breaks technically expired at the end of last year, but behind practically each and every one of them is some constituency that does not want to see them ever die, and has therefore sent lobbyists to spend months pushing to get them reauthorized. In the meantime, deficit hawks have been pushing back and complaining about the cost of the bill.

That, combined with pushback over provisions like raising taxes on the carried interest of hedge fund managers and private equity firm partners, and on the earnings of S corporation partners that have been exempted from Social Security and Medicare taxes, have been a recipe for stalemate. Unfortunately, that’s also imperiling the unemployment benefits of hundreds of thousands of the long-term unemployed, not to mention aid to states that are on the verge of layoffs that could send unemployment figures back into the double digits.

The Dallas Morning News published a series of articles Sunday about the stubborn refusal of many in Washington to let some of these tax breaks expire, even ones designed to be temporary. That includes the research tax credit, which according to a report from the Government Accountability Office, often goes to companies whose research dates back to the 1980s, and not necessarily for much in the way of recent research and development efforts. The stories make for some eye-opening reading.

There has also been a lot of political wrangling over the bill, as Republicans and Democrats try to position themselves for the midterm elections in November. Some of the provisions have been scaled back in an effort to satisfy various constituencies, particularly in areas such as the carried interest tax, the S corp tax changes, and the "doc fix" for Medicare reimbursements to physicians. But the legislation is still hanging in the balance and may not even manage to pass before the July 4 break. Stay tuned.