Tax Extenders

The House Ways and Means Committee recently approved a proposal that would renew several tax breaks, known as “tax extenders”, both retroactively for those that had expired in 2017 and 2018 and also through 2020. The proposal, however, would pay for the tax extenders by accelerating the “sunset” provision that was built into the new tax law with respect to the significantly increased transfer tax exemption. By way of background, the 2017 tax reform legislation roughly doubled the transfer tax exemption (to $11.4 million in 2019), with the caveat that the increase would sunset (expire) after 2025. The new proposal would accelerate that sunset provision to January 1, 2023.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the extender provisions generally, as well as the viability of funding their extension by cutting the transfer tax exemption back to pre-reform levels of roughly $5.6 million per person.

Their Votes:

Bloink

Byrnes

Their Reasons:

Below is a summary of the debate that ensued between the two professors.

Bloink: This is a great way to get us back on track with respect to tax extender provisions that we’ve neglected for far too long. Even though tax extenders are usually left temporary because of budgetary constraints and political issues, the bottom line is that all of these provisions are designed to encourage some sort of policy that we want to see in action—whether it be to encourage homeowners to carry mortgage insurance or encourage environmentally friendly investments. By allowing the extenders to expire for such a significant period, we leave everyone facing unnecessary uncertainty with respect to the potential tax impact of their actions.

Byrnes: First, we should get rid of half of the tax extenders anyway. They present a burden that we have to face year after year, and the fact is that many of these tax extenders aren’t even relevant in today’s strong economy—while some, of course, continue to be important. Moreover, the new proposal doesn’t address the overarching problem, which is determining which extenders should be made permanent and which should be allowed to die. Of course, funding the extenders by accelerating the transfer tax exemption sunset is never going to happen and is just another Democratic ploy to undo a tax reform package that’s working.

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Bloink: Professor Byrnes’ second point is misguided--using the transfer tax exemption to fund the renewal of extenders is the perfect solution. It both rolls back a part of tax reform that blatantly favors the super-rich “one percent” and funds incentives that are important to the general public, the country and even the world environment. I do have to agree that he is right with respect to the need to provide certainty to taxpayers in the form of making these important initiatives permanent.

Byrnes: Professor Bloink is missing the point on my argument. Half of these tax extenders provisions are nothing but corporate welfare and are unjustified in light of today’s strong economy. We should let those provisions die so that we aren’t forced to reconsider them year after year, wasting our time with insane ideas about raising the death tax once again to pay for such blatant corporate welfare.

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Bloink: What Professor Byrnes calls “blatant corporate welfare”, I call carefully constructed provisions to provide tax incentives in order to encourage responsible behavior. Tax reform essentially eliminated the estate tax for the ultra-wealthy by increasing the transfer tax exemption to such an outrageous level--$22.8 million per married couple can be shielded from all transfer taxes in 2019. All that does is encourage dynasty building—it keeps the wealth tied up among the top one percent of families in this country at the expense of hardworking American families and the country as a whole.

Byrnes: Well, I’m all for repealing the death tax altogether—a tax designed to punish someone for dying is unjustified in my opinion. The fact is that most tax extenders are unnecessary right now and we should let them expire, or at very least consider a bill that carefully weighs the benefits and burdens that each individual extender presents rather than blindly continuing to renew these antiquated provisions year after year, looking to increasingly crazy ideas for funding their existence.