The FY2021 Omnibus and COVID-19 relief package passed by Congress makes many big (and costly) changes to the tax code. Some are designed to provide pandemic-related economic relief, like the second round of 2020 recovery rebates of $600 to individuals. Others, however, are parochial provisions helping specific interests that Congress “temporarily” renews every year or two, collectively known as “tax extenders.”

In general, tax extenders are a terrible way to make policy. Congress often renews them retroactively, rewarding businesses for decisions they’ve already made, and extending the giveaways in one or two-year increments intentionally hides their true cost. Not to mention that they often subsidize ridiculous activities, like owning racehorses and building facilities at NASCAR tracks, and are rarely, if ever, paid-for. That matters this year more than most; excluding energy provisions, the extenders’ total 10-year price tag is $89 billion.

Many of the tax extenders support energy interests and an overview of those provisions in the bill is available here. But there are plenty non-energy tax breaks in the bill too, and Congress made some interesting changes to them. Below is a list of some notable changes in this year’s tax extenders’ extension. A full list of provisions is available at bottom.

Tax Provisions Promoted to Permanent

For a handful of provisions, this will be their last appearance in extenders legislation because Congress is making them a permanent part of the code.

• Above-the-line deduction for qualified tuition and related expenses
  • The actual provision was cut, but the Lifetime Learning Credit that does not expire was beefed up instead.
• Railroad track maintenance credit
  • 40% of maintenance costs now a credit permanently
• Permanent reduction in medical expense deduction floor
  • Reduction of floor for deduction from 10% to 7.5% of adjusted gross income.
• Benefits provided to volunteer firefighters and emergency medical responders

Booze Wins Big

In the U.S., alcohol sales are on the rise and have been for years. But that didn’t stop Congress from lowering taxes for the industry as part of the 2017 Tax Act. The law created roughly nine “temporary” provisions that were originally set to expire at the end of 2019, but they were revived for one year more in the tax extenders package that passed in December 2019. In this year’s package, despite records sales in 2020, Congress decided to make the subsidies permanent. Some of the provisions are pretty technical, but the biggest ones are:

• Shortening the production period during which interest expenses must be capitalized by excluding time when beer, wine, or spirits are aging. 10-year cost: $134 million
• The excise tax on beer is reduced to $16/barrel for the first six million barrels per taxpayer (coinciding with craft brewer definition); rules are changed so it’s easier for related brewers to be taxed individually (at the lower rate); brewers producing fewer than two million barrels in a year get the tax rate cut in half to $3.50/barrel on their first 60,000 barrels; beer can also be transferred between facilities without the tax becoming due more often. 10-year cost: $1.02 billion
• All domestic wine producers, not just small vintners, get credit against excise tax for first 750,000 wine gallons produced (roughly 312,500 cases); cutoff for higher excise tax rate raised to 16 percent from 14 percent. 10-year cost: $2.19 billion
• Because credits are harder to allocate to foreign producers, the act allows them to get refunds from the U.S. treasury starting in 2023.
• For distilled spirits, the act reduces the tax from $13.50/proof gallon to $2.70/proof gallon for the first 100,000 proof gallons (includes all craft distillers), and to $13.34/proof gallons for the next 22,130,000 proof gallons; language allowing transfers between facilities without incurring tax. 10-year cost: $5.7 billion
• Total 10-year cost (/subsidy to industry) = $9.05 billion

Extended Extensions

Certain other provisions, some of which were not even expiring this year, were renewed through 2025. Those include:

• Exclusion from gross income of discharge of qualified principal residence indebtedness.
• Look-thru for related controlled foreign corporations
• 7-year recovery period for motorsports entertainment complexes
• Special expensing rules for certain [TV, film, and theater] productions
• Empowerment zone tax incentives
• New Markets Tax Credit
• Employer Credit for Paid Family and Medical Leave
• Work Opportunity Credit

To illustrate how cynical and costly tax extenders can be, look at the 7-year recovery period for motorsports complexes (aka NASCAR tracks). When it was enacted in 2004, Congress set it to expire at the end of 2007 and the JCT estimated it would cost $81 million over the first four years. Its inclusion in this year’s Omnibus marks the eighth time it’s been extended. In total, the extensions have cost $578 million, or seven times the cost of the original three-year “temporary” measure. In addition NASCAR itself owns 13 tracks (including Daytona and Talladega) while Speedway Motorsports owns an additional eight – the vast majority of the tracks – making this very clear corporate welfare.

Continuing to revive tax extenders in short spurts is an effective way to hide their true cost and taxpayers shouldn’t stand for it.