Which tax credits will be made permanent, and which will be merely extended?

As 2014 draws to a close, political watchers are hopeful that a government shutdown will be averted and that a package of tax extenders will indeed be passed, albeit a smaller package than initially thought.

With the current deal to fund the government expiring Dec. 11, and Congress set to adjourn Dec. 12, plenty of “drama” will ensue as lawmakers rush to push through a funding measure, says political strategist Greg Valliere, which could likely be a “CROmnibus — a combination of a [continuing resolution] CR and Omnibus” spending bill.

“There won’t be a shutdown,” Valliere predicts in his Monday commentary. “There’s at least a 40% chance that an omnibus bill, funding virtually all of the government through Sept. 30, will pass.” However, he adds that “this is Washington, and with time running out, lawmakers simply may punt and pass a short-term CR, the path of least resistance.”

Washington Analysis predicted the same day that an omnibus appropriations bill that funds “the vast majority of the government will be enacted, while a short-term continuing resolution will likely be used to fund the Citizenship and Immigration Services while Republican lawmakers debate how to better respond to President Obama’s immigration executive order.”

Failing such an agreement by Dec. 11, “a broader CR will be employed to avoid a government shutdown,” Washington Analysis says.

As for tax extenders, odds of a two-year tax extenders package (with some provisions made permanent) dropped following President Barack Obama’s recent veto threat of the deal negotiated between Senate Majority Leader Harry Reid, D-Nev., and Ways and Means Committee Chairman David Camp, R-Mich., Washington Analysis says.

The most likely outcome is for the “contours” of the Reid-Camp “agreement to remain mostly intact,” Washington Analysis says. The Earned Income Tax Credit (EITC) or the child tax credit will be made permanent in exchange for the R&D tax credit, and Section 179 expensing for business-related property will be made permanent as well, the analysts say.

Items that are likely to see a two-year extension include bonus depreciation, the short-line rail tax credit, a rum tax and the Mortgage Debt Relief Act.  The Production Tax Credit (PTC) for wind would be extended through 2017.  “Should lawmakers fail to achieve a two-year deal for the majority of these items, the fallback position would be a one-year extension retroactively effective to last year,” Washington Analysis says. Indeed, Valliere predicts the R&D tax credit will get a short-term extension, “maybe for only one year, retroactive to Jan. 1, 2014.”

Valliere adds that while the White House is “adamantly opposed to GOP efforts to curb further expansion” of the EITC, “no one is talking about killing the entire EITC.”

Senate Finance Committee Chairman Ron Wyden, D-Ore., also urged Congress in a Nov. 27 Op-Ed to extend this month his Internet Tax Freedom Act, which he said is designed “to protect the Internet from access taxes, and taxes that discriminate against activity just because it occurs online.”

The Act, Wyden said in the Op-Ed, ensures “that existing brick-and-mortar businesses couldn’t lobby for new taxes that would put their online competitors at a major disadvantage.”

— Check out Valliere: Despite Victory, Republicans Shouldn’t Think Voters Love Them on ThinkAdvisor.