Ronald Reagan famously said: “We could say [Democrats] spend money like drunken sailors, but that would be unfair to drunken sailors. It would be unfair, because the sailors are spending their own money.”  With Democrats looking like they may lose control of the Senate this year, Finance Committee Chairman Ron Wyden (D-OR) just announced he will introduce a bill to bring back a $65 billion honey pot of special interest tax breaks that expired on December 31st. The Democrats’ desire to increase spending in an election year is sure to antagonize Republican deficit hawks in the House of Representatives.  But the Democratic Senatorial Campaign Committee (DSCC) through January has been winning the battle for campaign cash by raising $18 million from friends for the 2014 midterm elections.

Congress let 55 popular business and personal tax breaks expire on December 31, 2013 as part of the 2014 budget battle. Tax credits for business have never been perpetual entitlements in the federal tax code.  But once passed into law by Congress, they generate staunch support from special interest advocacy groups and lobbyists.  Consequently, each year the Congress ritually passes temporary extensions, referred to as “tax extenders.” Until last year, these included tax code credits for corporate research and development, alternative and renewable energy, and mass transit and low-income housing, to tax-breaks for Indian reservation coal production, railroad track maintenance, and even racehorse ownership.

One of the most egregious tax breaks for business passed by Congress in the 2009 stimulus programto create more American jobs was Section 179 of the Small Business Jobs Act of 2010 (SBJA).  Prior to its passage, businesses could only deduct the first $25,000 in qualifying assets they needed to run their business (office and medical equipment, machinery, etc.) without having to stretch out depreciating the purchased assets over the number of years of “useful life.”  SBJA raised the immediate deduction for business by twenty times to $500,000. 

It has been reported that European luxury auto sales became one of the prime beneficiaries of Section 179.  But in the rancor of the budget battles last year, negotiations between Democrats who wanted to increase spending and Republicans who wanted deficit reduction reached a stalemate.  As a result, the Section 179 tax break expired and the deductible amount plunged by 95% back to $25,000 in 2014.

The most recent Congressional campaign funding reports show the Democrats are easily leading in the battle to raise cash for the 2014 midterm elections.  In January the Democratic Senatorial Campaign Committee (DSCC) announced it raised a record $6.6 million, compared to just $4.62 million in contributions going to the National Republican Senatorial Committee (NRSC)).  The DSCC said at the time that they outraised the NRSC by $18 million. They reported $15 million in in the bank and only $2.5 million in debt.  President Obama has committed to headline six DSCC fundraisers this year.

Interest groups that want to resurrect another tax extender have found a good friend in the Senate Democratic leadership.  “I am hopeful we can reach a bipartisan agreement on extenders in the days ahead,” Chairman Wyden said. “This means jobs and much-needed certainty for families and businesses alike. But let me be clear -- I’m determined that this is the last time we do extenders and would like to leverage this last extension to reform the broken tax code.”

Senate Democrats are facing nine competitive elections this year, including trying to defend seats in the Republican-leaning states of Arkansas, Alaska, West Virginia, and Montana.  But winning the fundraising contest is a superior campaign strategy. 

The author welcomes feedback @ chriss@chrissstreetandcompany.com
Chriss Street is teaching microeconomic at University of California, Irvine this spring from March 31 – June 8, 2014.  Call Student Services at (949) 824-5414 or visit http://unex.uci.edu/courses to enroll!