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While Republican presidential hopefuls were debating in Las Vegas, congressional leaders announced they had agreed to restore and extend dozens of special interest tax cuts—many permanently. And those GOP candidates for the White House? They’ve promised to repeal nearly all of the tax breaks congressional leaders worked so hard to restore.
What is going on here? Why would House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell put so much effort into making permanent a package of tax breaks that could be back on the chopping block a year from now?
Like much of what happens in Congress, it’s all about budget accounting. And in this case, it turns out you can buy bigger tax rate cuts by repealing permanent tax breaks than by swapping out temporary versions of the same subsidies.
I’ll explain why in a minute. But first, here’s a quick rundown on what the congressional leadership proposed:
First, they’ve proposed to make permanent about two dozen tax subsidies including:
- Enhanced versions of the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit. Without congressional action, these would have been replaced with less generous versions after 2017.
- Itemized deductions for state and local sales taxes.
- A package of incentives for charitable giving, including a provision that allows tax-free contributions from IRAs.
- The research credit.
- Expensing for small business capital investment.
- A provision that allows U.S. based multinational corporations to defer tax liability on income they earn from “actively financed” foreign investments.