Tax Roundup, 2/23/16: Governor Branstad reverses stand, now supports Section 179 and other extenders.

February 23rd, 2016 by Joe Kristan

coupling20160213Found money. Governor Branstad started out this legislative session saying the state couldn’t afford the $500,000 Section 179 deduction ever again. He also said the state couldn’t afford to couple to any other 2015 federal tax “extenders.”

Never mind.

The Governor’s office confirmed yesterday that it has decided to support the House-passed coupling bill, HF 2092. The House bill conforms to all 2015 federal extenders, including a permanent $500,000 Section 179 deduction. The Section 179 deduction allows taxpayers to deduct in the year of purchase equipment costs that would otherwise be capitalized and deducted over a period of years through depreciation.

The fate of the extender bill now is in the hands of Senate Majority Leader Gronstal, who controls which bills can come to a vote in the Democrat-controlled chamber. Sen. Gronstal and chief Senate taxwriter Joe Bolckom have announced their support for the Governor’s now-abandoned anti-coupling position. That means they now have a bargaining chip. From O. Kay Henderson:

Senator Mike Gronstal of Council Bluffs, the top Democrat in the legislature, said Senate Democrats are willing to pass these tax cuts, if Republicans are willing to adjust tax policy elsewhere. Gronstal suggested doing away with the $40 million tax break the Branstad Administration unilaterally gave manufacturers.

So now it’s a hostage negotiation.

The Governor’s office hasn’t said where he found the funding for the extenders on his road to Damascus, reports The Des Moines Register:

Spokesman Ben Hammes said in an email Monday that the governor now supports the bill, “given we can still fund the budget priorities of Iowans.” Hammes did not respond to direct questions about how Branstad would calculate the budget differently without funding concerns.

20151118-1I like to think that the Governor’s budget math was altered by a rebellion of his partisans in the General Assembly. Every Republican who voted on the House bill voted against the Governor’s position, and their minority contingent in the Senate would likely do the same thing.

While Section 179 is the biggest revenue item in the extender package, there are a number of other 2015 tax breaks at stake, including:

Exclusion for IRA contributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
Educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Conservation easement deductions
Deduction for food inventory contributions

The Department of Revenue has warned taxpayers that they have no authority to claim these breaks until the legislature acts. The Department has so far provided no guidance so far on how to report some of these items, such as the exclusion for IRA charitable distributions.

I think the prospects for eventual Senate passage, which appeared bleak as recently as Friday, now are favorable. House Democrats also voted in favor of the House bill, 26-14. There is no reason to believe Senate Democrats feel differently. So while Sen. Gronstal can be expected to extract concessions, probably in spending priorities, he probably is under some pressure from his own caucus to move the bill. I don’t expect the Governor to surrender the manufacturing sales tax exclusion in any deal.

If the Governor and the legislature need to find some revenue to help make it up, I have a handy list of revenue ideas for them.

Related: Prior Tax Update Coverage.




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