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5 Notes About Year-End Tax Breaks      12/21 07:49

   Five things to know about the year-end tax package, which President Barack 
Obama signed into law Friday.

   WASHINGTON (AP) -- In an almost annual ritual, Congress has passed a 
last-minute package of temporary tax breaks, sparing millions of businesses and 
individuals from unwanted tax increases just weeks before start of filing 

   Congress extends these tax breaks every year or two, usually at the last 
minute, drawing complaints from business leaders tired of the uncertainty. This 
year's package will add nearly $42 billion to federal budget deficit, according 
to congressional estimates.

   Five things to know about the year-end tax package, which President Barack 
Obama signed into law Friday:


   Businesses big and small, commuters who use public transportation, teachers 
who spend their own money on classroom supplies and people who live in states 
without state income taxes.

   The package of 54 tax breaks is a collection of narrow provisions targeting 
specific groups and industries, held together by a few broad tax breaks that 
benefit millions.

   In all, they affect about one in six taxpayers, according to the Tax 
Institute, the independent research arm at tax giant H&R Block.

   Among the biggest breaks for businesses are a tax credit for research and 
development and an exemption that allows financial companies such as banks and 
investment firms to shield foreign profits from being taxed by the U.S. Several 
provisions allow retailers and other businesses to write off capital 
investments more quickly.

   Other, narrower provisions include tax breaks for film and theater 
producers, NASCAR racetrack owners, racehorse owners, and rum producers in 
Puerto Rico and the Virgin Islands.

   One protects struggling homeowners who get their mortgages reduced from 
paying income taxes on the amount of debt that was forgiven.


   Some of the tax breaks were originally intended to be temporary, but 
powerful interest groups keep them alive year after year. Others are popular 
but expensive, leaving some deficit-weary lawmakers reluctant to make them 

   For example, some conservatives say a generous tax credit for using wind 
farms and other renewable energy sources to produce electricity has outlived 
its purpose. The tax break was first enacted in the 1990s to help kick-start a 
fledgling industry. It has been renewed many times since.

   One of the most popular tax credits rewards businesses for investing in 
research and development. Both Democrats and Republicans want to make it 
permanent, but congressional estimates say it would cost $156 billion in lost 
revenue over the next decade, so lawmakers simply renew it every year or two, 
masking the true long-term cost.


   Yes, the vast majority of them expired at the beginning of the year. The 
bill Congress passed retroactively extends them through the end of this year, 
enabling taxpayers to claim them on their 2014 income tax returns.


   Tax experts say it is terrible policy to let these tax breaks expire 
repeatedly, only to renew them retroactively at a later date.

   Consider this: The tax credit for research and development is supposed to 
provide an incentive for businesses to invest in R&D. The credit expired in 
January and was just renewed, nearly 12 months later. How much incentive do you 
think the credit provided while it was expired?

   Also, business groups complain that companies can't accurately project 
expenses from year to year because they don't know for sure whether Congress 
will renew their tax breaks.


   The tax breaks expire again on Jan. 1, creating more uncertainty next year.

   Lawmakers from both political parties say they want to overhaul the tax 
code, presumably dealing with these tax breaks once and for all. That would be 
a heavy lift, even with one party -- Republicans -- controlling both the House 
and Senate.

   If Congress can't accomplish a tax overhaul, lawmakers may still try to make 
some of the tax breaks permanent while letting others expire. If they fail, 
Congress could be right back where it was this year, passing another 
last-minute temporary tax package.  


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