Inaction on tax extenders would affect over 19 million taxpayers

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) yesterday continued his quest to pass a stalled package of popular tax extenders before lawmakers leave town this weekend, releasing new data showing that inaction would affect millions more taxpayers than previously estimated.

The tax extenders are a high priority for businesses that rely on the research-and-development tax credit and fear capital losses if it lapses. But the Internal Revenue Service’s (IRS) updated report to Grassley showed that 19.2 million individuals would be affected by a delay in extension of three other deductions in the package: for state and local sales taxes, college tuition and fees, and teachers’ purchase of school supplies.

“The higher numbers are all the more reason to extend these tax breaks this week and not wait until the lame duck session,” Grassley said in a statement. “Waiting will create headaches and hardship for tens of millions of taxpayers.”

Grassley has kept a steady drumbeat of criticism as Senate leaders continue to postpone action on the tax extenders, which failed in July as part of the “trifecta” bill that included a minimum-wage hike and an estate tax cut. His calls for quick action on the extenders have been echoed by Democrats but few Republicans, who still hope to use the once must-pass package as a sweetener for a trifecta sequel or other contentious legislation.

That strategy of pushing the extenders until after the election, when leadership could again bid for centrist Democratic support for an estate-tax cut, risks falling permanently short, one Senate tax aide said.

“The only way this strategy helps us clear the 60-vote hurdle is in the scenario where Republican margins increase in the House or Senate,” the aide said. “Otherwise … you have already made those people take those tough votes on this political document called the trifecta.”

Moreover, the aide pointed out, three of the four centrist Senate Democrats who have consistently voted for estate-tax repeal or cuts – Sens. Bill Nelson (Fla.), Blanche Lincoln (Ark.) and ranking Finance Committee member Max Baucus (Mont.) – have all stated publicly that the trifecta strategy rankled them.

Grassley was named this month to an informal working group of Senate Republicans to discuss the format for a possible second trifecta that could win more Democratic votes, although a Senate GOP aide said the full group has not met in more than a week. In the meantime, however, Grassley’s predictions that Democrats would attempt to make political hay from the unpassed extenders have held true.

At a press conference earlier this week, Baucus and other senior Democrats called attention to several failed Baucus motions to pass the tax extenders as a standalone bill. The Democrats contended that GOP inaction on the extenders is tantamount to a tax increase on the middle class.

“These are bread-and-butter tax cuts that millions of Americans count on, and folks are going to notice when they’re not available,” said one Democratic Finance panel aide.

Grassley released data earlier this month pegging the number of affected individuals at fewer than 15 million and calling attention to the high cost of printing IRS forms late to accommodate the extenders during a post-election lame duck session.

According to IRS data given to Grassley, tax forms should be finalized at the agency by mid-October in order to ensure smooth mailing of tax returns and an orderly filing process. If the extenders are not passed until mid-November, when Congress returns to session, the IRS predicted a jump in taxpayer errors, helpline calls, and delayed refunds.