$50B a year in budget ‘savings’ will come from expired tax breaks

Those worried that the bipartisan budget making its way through Congress does not include enough deficit reduction can take some solace in the fact that more savings will quietly take effect after a number of tax breaks expire at the end of the year.

More than 50 tax incentives will expire on New Year’s Eve — ranging from breaks on energy-efficient appliances to biofuel production to investments in businesses that serve low-income communities.

Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, said eliminating the breaks will boost federal coffers by about $50 billion a year.

The House passed a budget deal Thursday that replaced $63 billion in sequestration cuts, while reducing the deficit over 10 years through, among other things, higher fees on airline travel and requiring new federal employees to contribute more toward their pensions.

The proposal caused heartburn on both sides of the aisle.

Democrats said it should have also extended expiring unemployment benefits, while Republicans said that there is too much spending in large part because the deal restores more than $60 billion of the sequester cuts that were included in the 2011 Budget Control Act.

The savings from the expiration of tax credits was not included in the $23 billion deficit reduction in the budget plan because the Congressional Budget Office doesn’t consider programs set to expire as savings, said Eli Zupnick, a spokesman for the Senate Budget Committee.

Some of the expiring tax breaks are tied to biofuel and clean energy initiatives, including one that would have cost $100 billion from 2013 to 2017 in incentives for the construction of energy-efficient homes. Another expiring tax credit provides breaks for producing ethanol made from agricultural waste or wood products.

Bob Dinneen, president of the Renewable Fuels Association, said taking that tax break off the books sends a negative message to those who have invested in the industry.

“They’ve poured a lot of money into their plants and there was an expectation, I think, when they went to folks who financed facilities that there’d be this tax incentive at the end to help them recoup this extraordinary investment,” Mr. Dinneen said. “So right as the industry is about to be commercialized, we’ve done everything the government wanted, now they’re going to take the incentive away? It would have a really poor impact.”

Robert Bixby, executive director of the Concord Coalition, an advocacy group that promotes balanced budgets, said letting the tax breaks expire will reduce the deficit by $500 billion over 10 years.

But he acknowledges that some conservatives may be lukewarm to the budget deal because the deficit reduction comes from new revenues, not spending cuts.

What’s more, the savings from the expiring tax breaks could be short-lived. In the past, Congress has reapproved tax breaks retroactively, something that could happen in early 2014, Mr. Marr said.

“There will certainly be rumblings about it, but how serious that is, it’s hard to know,” he said. “It’s tied up with the whole discussion about tax reform. There’s still this push to do a much larger tax legislation which is very much uphill. The question is, do they hold the extenders back until that has resolved itself or do they go off and do the extenders by themselves?”

While lobbyists for industries that benefit from the tax breaks likely will push to extend the credits in 2014, letting the tax breaks expire may be a good first step to begin working on some long-needed major tax reform, Mr. Bixby said.

“If they’re going to do tax reform, this is a great way to start,” he said. “In tax reform, the classic idea is to broaden the base and lower rates. This is a great way to help broaden the base. It may be the only tax reform that we’re going to get in the next few years, and I think it would be a good thing to do.”