EDITORIAL: Tax break talks highlight need for reform

Congress will make an all-new case for federal tax simplification next week, when it reboots talks for extensions on all the breaks, credits and deductions that expired last year or die a month from now.

In all likelihood, that compromise will be an abomination worthy of the existing Frankensteinian tax code.

The Wall Street Journal’s Kristina Peterson and Damian Paletta reported Tuesday that Senate Democrats and House Republicans were close to an agreement to make permanent (Gasp!) a number of temporary deductions — including the sales tax deduction that saves Nevadans hundreds of dollars per year on their federal returns — but that deal stalled when the Obama administration threatened to veto the plan.

The most important part of the compromise would have made permanent breaks for business research and deductions for small business equipment. Giving companies tax certainty would encourage the kinds of investments needed to grow the economy more quickly.

But President Barack Obama’s priorities weren’t part of the plan. His administration wants to make permanent an expanded Earned Income Tax Credit and Child Tax Credit, which effectively provide wage subsidies to the working poor who earn too little to owe any federal income taxes.

The president’s demands are not unreasonable. Expanding tax credits to the working poor would cause far less economic harm than a substantial increase in the federal minimum wage, which would kill jobs and price even more teenagers and unskilled young adults out of the labor market. The problem is that the president wants the expanded tax credits and an increased minimum wage. House Republicans would be smart to strike a deal with the White House that addresses the tax credits — with the understanding that a minimum wage increase is off the table for the rest of the president’s term.

What’s most important to Nevadans, however, is making permanent the sales tax deduction, which has been reauthorized every other year since 2004, allowed to die before being resurrected and extended again and again. The deduction, which gives all Americans the option to write off either their state income or sales taxes, actually expired Dec. 31, 2013, but can be revived for the 2014 tax year if it’s extended by the end of December. It should have been made permanent years ago.

But that deduction and every other break should be on the table next year when, with Congress under full Republican control, lawmakers should undertake a major overhaul and simplification of the tax code. The goal should be lower rates and far fewer breaks, most of which exist to reward and punish certain behaviors. Instead of having a tax code so complicated that no one can file without making errors, Congress should create a code so simple that even a child can prepare a return.