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Craft brewers, railroads and more to see permanent tax breaks

Clean energy industries would also be winners under the tax agreement

Wyden says measure will ease transition to "low-carbon economy."
Wyden says measure will ease transition to "low-carbon economy." (Caroline Brehman/CQ Roll Call)

Lawmakers are primed to make excise tax cuts for some 20,000 small brewers, wineries and distilleries permanent in an emerging year-end tax package being grafted onto an omnibus spending bill, according to sources familiar with the tax package who spoke on condition of anonymity.

These small businesses, located in every state and almost every congressional district, waged an intensive lobbying campaign to protect tax breaks that were estimated to cost the Treasury $950 million for a one-year extension that expires Dec. 31.

“This is a huge sigh of relief for struggling craft distillers who have been on pins and needles awaiting the outcome of these discussions,” Chris Swonger, president and chief executive of the Distilled Spirits Council, said in a statement.

Small distillers were scheduled to lose an 80 percent cut in their excise taxes on Dec. 31, which threatened the survival of some operations since the industry relies heavily on tasting rooms and other consumer contacts that have fallen off during the pandemic.

A $1.80 per square foot tax credit on expenditures to make commercial buildings more energy efficient would also be made permanent under the proposal, with the credit indexed for inflation and updated efficiency standards.

The measure would also permanently extend a popular 50 percent tax credit for short-line railroad track maintenance, though at a reduced rate of 40 percent starting in 2023.

Other provisions that would be made permanent include:

  • The deductibility of medical expenses amounting to more than 7.5 percent of a taxpayer’s adjusted gross income. Unless extended, only expenses exceeding 10 percent of AGI will be deductible next year.
  • An above-the-line deduction for qualified tuition and related expenses for higher education of $4,000 for individuals with AGI not exceeding $65,000, or $130,000 for joint filers.
  • Benefits for volunteer firefighters and emergency medical responders, including an exclusion of certain state and local benefits from gross income.

Five-year extensions

Several other provisions would get five-year extensions, including a key benefit for homeowners underwater on their mortgages, allowing them to escape big tax bills for debt forgiveness. Qualifying debt eligible for the break would be cut from $2 million to $750,000, however.

Other five-year extensions are set to include so-called work opportunity tax credits employers get for hiring certain categories of workers, such as those receiving cash welfare benefits.

A favorite of House Ways and Means Chairman Richard E. Neal, D-Mass., so-called new markets tax credits for investing in economic development projects in distressed communities, would also get renewed for five years.

Another tax break that would be extended for five years is one that’s popular with large U.S. multinationals, the “look-through” rule for related controlled foreign corporations.

First enacted in 2005 for three years, the temporary break allows companies to shift interest and other easily moved types of income between related foreign subsidiaries. It has been extended repeatedly since. Through the “look-through” rules income is shifted from a controlled foreign corporation, or subsidiary, in high-tax countries to one in a lower-tax country.

The latest two-year extension will cost the government an estimated $700 million, according to the Joint Committee on Taxation. The larger cost is to the high-tax foreign countries that lose tax income when money is shifted to lower-tax countries.

Other provisions that would get five-year extensions include:

  • A seven-year recovery period over which the costs of a motorsports complex can be written off.
  • A deduction of up to $15 million of the aggregate production costs of any qualified film, television or live theatrical production as opposed to the depreciation of these costs.
  • Tax credits for paid family and medical leave equal to 12.5 percent of wages for up to 12 weeks of leave if the employer is paying at least 50 percent of usual wages; the credit rate rises if employers pay workers on leave higher wages.
  • An exclusion from taxable income for up to $5,250 in employer-paid student loan repayments.
  • A 9-cent per barrel tax that goes to the Oil Spill Liability Trust Fund.
  • Tax incentives within economically distressed areas designated as Empowerment Zones.

Energy incentives

Clean energy industries would also be winners under the tax agreement. Investment tax credits for solar equipment installations would be extended at 26 percent for two more years, rather than stepping down to 22 percent next year and then 10 percent the following year. A new investment tax credit for “waste heat to power” systems that capture heat from industrial generation would also be added to the tax code.

Tax credits for production of wind-powered electricity would get extended for another year, and credits for offshore wind power facilities would be available through 2025. Credits for carbon capture and sequestration projects would also be renewed through 2025.

“The agreement extends and expands tax incentives for clean energy that have been critical in moving us toward a low-carbon economy,” Senate Finance ranking member Ron Wyden, D-Ore., said in a statement. “Importantly, breaks for solar and wind power have been preserved, and incentives for making buildings more energy efficient have been made permanent.”

Numerous other temporary tax breaks, such as depreciation deductions for racehorse owners and credits for U.S. firms such as tuna producer StarKist Co. that operate in American Samoa, would be renewed for one year through 2021.

Opponents of temporary tax policies span the political spectrum from Americans for Prosperity to the Committee for a Responsible Federal Budget to consumer advocate U.S. PIRG. The groups, though, have argued in one voice that one-year extensions, often done retroactively, do not encourage their targeted behaviors, such as energy conservation, clean fuels or individual tax planning.

As negotiations over the new extenders package heated up, Senate Finance Chairman Charles E. Grassley noted earlier this month that “there is quite a drive to do more than just the one year extensions.”

Niels Lesniewski contributed to this report.