A more temporary tax system

For at least the past decade, our federal tax system has had several temporary provisions. That is, rules added to the law with an expiration date. Many of these items are credits that often are not included as permanent items because they tie to economic stimulus or temporary energy needs (such as promoting alternative fuels by lowering their cost). Another reason for temporary provisions that result in less federal revenues is that they don't "cost" as much in a 10-year budget window if in existence for one or two years rather than for all ten years.

The Tax Cuts and Jobs Act (P.L. 115-97 (12/22/17) has increased the number of temporary provisions in the law. Most notably, most of the individual tax cuts, such as lower rates, a higher standard deduction and child credit, as well as lost deductions such as interest on home equity debt and casualty/theft losses, are only in the law for eight years (2018 through 2025).

Each January, the Joint Committee on Taxation (JCT) publishes a list of all temporary provisions and when they expire. Below I have a summary of the number of expiring provisions identified in their January 2017 report and the one issued in January 2018.

Year	2017 JCT Report	2018 JCT Report
2016	36	34*
2017	2	1**
2018	1	3
2019	10	9
2020	1	1
2021	4	3
2022	2	2
2023	1	1
2024	0	0
2025	1	23
2026	0	2
2027	0	1
TOTAL	58	80

As you can see, we go from 58 temporary provisions last year to 80 temporary ones today. Also, the number is really higher each year because the JCT combines some similar items, such as various empowerment zone tax incentives.

Missing Item: I think the number for the 2018 report is missing at least one new temporary item.  P.L. 115-97 provides that for tax years beginning after 12/31/22, taxpayers may no longer follow Code section 174(a) on expensing of R&D expenditures. Instead, such costs must be capitalized and then amortized over 5 years (15 years for foreign research). Thus, I think we really have 4 temporary items expiring in 2021 because section 174(a) should have been included.  Also, I expect that Congress will find a way for this capitalization provision to never go into effect. Favorable treatment of R&D expenditures should be in our tax law for a few reasons: simplification, incentivizing R&D, and international competitiveness.  So, why did Congress add a provision that harms economic growth?  Likely to help generate revenue to help reach the $1.5 trillion cost of tax reform without going over that amount.

What do you think?

*Includes section 199(d)(8) for certain Puerto Rico benefits. P.L. 115-97 repeals section 199 effective for tax years beginning after 12/31/17, so this temporary item is only relevant for possibly seeing Congress renew it for 2017. An item removed from the 2016 for the 2018 report is the 7.5% threshold for deducting medical expenses for individuals age 65 or over. It got moved to the 2018 list because for 2017 and 2018, all individuals use a 7.5% threshold for both regular tax and AMT.

**Airport excise taxes were renewed one year by 2017 legislation (so got moved to the 2018 list for the 2018 JCT report.