Committee for a Responsible Federal Budget

Deja Vu All Over Again...Again: February Edition

Jan 9, 2012 | Taxes| Health Care

Remember when we said last November that Congress had a lot to do by the end of the year? Well, they took care of FY 2012 appropriations, but everything else is now left to be determined or temporarily extended by the end of February (at least they have an extra day). The payroll tax cut, unemployment insurance, and doc fix extensions that passed will expire by February 29 and there could even be pressure to extend the AMT patch and the "tax extenders" that were neglected last month.

The AMT patch is something that readers of this blog will be familiar with, but the extenders are less well-known. Conveniently, CNN has an article talking about these tax extenders that are rarely looked at closely or individually. Many of these extenders are on the corporate income tax side, headlined by the R&D tax credit but also including benefits for narrow interest groups (like ethanol producers or NASCAR, for example). There is also the full expensing of capital investments that was passed last year. The CNN article, however, focuses more on individual tax breaks.

It focuses on these five extenders:

  • State and local sales tax deduction, the cousin of the regular (and much larger) state and local income tax deduction. This tax expenditure makes the deduction available for people who make too little to pay state or local income taxes or who live in a state with no income tax.
  • Mortgage insurance deduction, not to be confused with another MID, the mortgage interest deduction. This extender allows taxpayers who make less than $110,000 to treat their mortgage insurance premiums as deductible interest.
  • Teacher classroom expense deduction, which allows teachers to deduct the cost of up to $250 worth of school supplies that they buy for their classroom.
  • Qualified education expense deduction, which allows students to deduct up to $4,000 for tuition and other higher education-related expenses.
  • Expanded mass transit deduction, which allows commuters who take mass transit to receive as large a maximum deduction for their expenses as those who must pay for parking during the work day ($240 per month). Without this extender, the maximum benefit for mass transit users is cut in half.
  • AMT patch, an increase in the exemption amount for the AMT so that millions of middle- and upper-middle income taxpayers don't get hit by it.

The reason why nobody panicked over inaction on the extenders and the AMT -- unlike the other pieces that got short-term extensions -- is because these extensions often come retroactively, as occurred in last year's December 2010 tax cut package.

Since all of the expiring provisions are still left to be dealt with, our paper on them from last month still applies. Lawmakers should not try to squeeze through all these extensions without offsetting the costs or by using gimmicks.