United States: Tax Policy Update - December 1, 2014

Last Updated: December 8 2014
Article by Russell W. Sullivan and Danielle R. Dellerson

NUMBER OF THE WEEK: $450 billion.

The cost (over 10 years) of a bipartisan deal to extend the majority of the 55 expired or expiring tax provisions known as extenders, making a select few permanent. The deal, which would not have been paid for, appeared to have legs last week... until the Obama administration, with support from some Senate Democrats, cried "veto" over the deal's alleged inequitable allocation of benefits among poor people and corporations.


Extenders Deal Fumbled Inches From Goal Line. President Obama's preemptive veto threat sacked the extenders deal that began emerging last week, and with the clock ticking, lawmakers are now forced to coalesce around a retroactive one-year deal of all the tax breaks that expired at the end of 2013. The House could vote on such a bill as early as Wednesday, and we expect it will be a clean extenders bill, but for the likely addition of a package of technical corrections. Some expected the ABLE Act, H.R. 647, which creates new tax-favored savings accounts for individuals with disabilities, to be inserted into the extenders bill. But, given all of last week's drama, lawmakers are looking for the path of least resistance. For more details on the deal-that-almost-was and where we go from here, check out the "Extenders In-Depth" section below.


White House Veto Threat Sinks Hope for a Multiyear Deal

A one-year deal on a tax extenders package is now more likely, after House and Senate leaders, along with leaders of the tax-writing committees, spent much of the past few weeks negotiating a multiyear tax extenders deal, only to have it crumble under a veto threat from the White House on Tuesday.

The deal included provisions favored by both the Ways and Means Committee and the Finance Committee. The compromise would have extended most of the provisions that the Ways & Means Committee had made permanent, and the remainder of the extenders would have been extended for two years, consistent with the Finance Committee's EXPIRE Act of 2014. Under the proposed deal, the following provisions would be made permanent:

  1. The research and experimentation credit, as simplified under the House-passed bill, H.R. 4438;
  2. Section 179 expensing;
  3. State and local sales tax deduction;
  4. American Opportunity Tax Credit;
  5. Employer-provided mass transit and parking benefits exclusion;
  6. Reduced recognition period for built-in gains of S corporations;
  7. Rules regarding basis adjustment of S corporation stock for charitable contributions;
  8. Tax-free distributions from IRAs for charitable purposes;
  9. Deduction for charitable contribution for conservation purposes; and
  10. Deduction for charitable contribution of food inventory.

The deal also phased down the wind production tax credit and modified the bonus depreciation provisions.

Important for Democrats, the developing deal included two of these permanent provisions championed by progressive senators: (i) the American Opportunity Tax Credit for higher education, and (ii) permanent exclusion for transit benefits on parity with the exclusion for parking.

The deal headed south when the White House, which previously had not fully engaged in the negotiations, issued a veto threat stating that the proposed deal did not go far enough with respect to individual tax cuts vis-ŕ-vis business tax cuts. White House aides hinted that additional provisions, such as permanency of the expanded earned income tax credit (EITC) and the child tax credit (CTC), would be necessary to balance the package.

Republicans responded by halting the negotiations and were befuddled as to why they might have to negotiate twice to reach an agreement.

Why The Veto Threat Is Likely To Tank A Multiyear Deal

The veto threat jeopardizes any multiyear agreement because the deal that congressional leaders negotiated is only worth it to each side if the bill actually becomes law. For Democrats, swallowing a bill north of $300 billion without offsets is worth it only if they get multiple years of clean energy provisions and significant tax cuts for middle- and low-income Americans. For Republicans, a deal that extends those low-income provisions and energy credits is only palatable if significant provisions, such as the R&D credit, are made permanent.

Two paths remain for trying to get a multiyear package approved. Neither is likely.

First, Republicans could try to address President Obama's concerns as part of the negotiations. However, including the EITC and the CTC raises significant issues in the Republican caucus. The U.S. government inspector general's office and outside watchdog groups have identified significant errors in these refundable credits. Republicans might agree to make them permanent, but only if significant reforms were made to reduce the errors and fraud. Democrats and President Obama are unlikely to agree to the reforms Republicans would propose. Consequently, Republicans are unlikely to agree to the provisions that President Obama has hinted are necessary to withdraw his veto threat.

The second path is to ignore the president's threat and try to pass the multiyear deal that was within striking distance. While this is possible in the Senate, it is unlikely in the House. In the Senate, if some combination of Democratic leadership (Sen. Reid, Sen. Durbin, Sen. Schumer and Sen. Wyden) announced support of the package omitting the EITC and CTC provisions, then the Senate Democratic caucus would split. Democrats supporting the package in combination with most Senate Republicans could possibly garner the 67 votes necessary to override the veto. The package of provisions being negotiated is more inclusive than the bill that all finance committee Democrats voted for earlier this year. Pressed to a vote, a majority of Senate Democrats would want to vote in the affirmative. Senate Republicans might relish overriding a veto — something many of them hope to do in the upcoming Republican-majority Congress. A split in the Democratic caucus, however, would be problematic for Democrats, and some will advise not breaking with Obama.

But this second path breaks down in the House of Representatives. Obtaining a majority in the House of Representatives would not be too difficult; however, obtaining the required two-thirds vote to override a presidential veto is highly unlikely. President Obama's position is more closely aligned with that of most House Democrats, who opposed the individual permanency bills that came to the House floor this summer. If the president does not soften his position, many House Republicans will tell their leadership that they will not vote for a bill that contains permanent EITC and CTC increases but lacks reforms to prevent error and fraud. That in turn enhances the power of House Democrats, most of whom would sustain an Obama veto.

These developments could be overcome if: (i) Members had sufficient trust in one another to sit down and think things through, and (ii) there were more than two weeks left in this Congress. Neither is the case, however.

Accordingly, it appears that a one-year extension of all of the EXPIRE Act provisions is the only way forward for this year, setting up another debate over extenders in the new year.


Juncker Survives No-Confidence Vote Over Luxembourg Tax Rulings. European Commission President Jean-Claude Juncker and the other 27 members of the European Union executive body survived a confidence vote last week when European Parliament members overwhelmingly rejected a motion targeting the former Luxembourg prime minister in connection with more than 300 tax agreements his nation has with multinational companies. Leaders of the parliament's top political parties also postponed a decision about whether to set up a special committee to investigate the issue of tax avoidance. Read more here.


Monday, December 1 – Tuesday, December 2

Wall Street Journal CEO Council's Annual Meeting

A number of U.S. and global officials will speak at the Wall Street Journal CEO Council's annual meeting in Washington today and Tuesday. Topics include financial and tax policy priorities and trends for 2015, and speakers include Christine Lagarde, managing director of the International Monetary Fund; Paul Ryan, the next chairman of the House Ways and Means Committee; and Stanley Fischer, vice chair of the Federal Reserve Board of Governors. More information on the two-day event is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.