In theory, Congress could still extend these (retroactively) for 2014. Back in December, Senate Majority Leader Harry Reid pushed for a one-year extension, and he'll no doubt try again when lawmakers return from recess. But there's a hitch: Extending all these breaks would increase the deficit by about $50 billion per year, estimates the Center on Budget and Policy Priorities, unless they're offset with tax hikes or spending cuts elsewhere.
Below are 10 selected tax breaks that just expired. These aren't necessarily the most important: Some are well-liked; some are highly idiosyncratic. But they're all gone for 2014 unless Congress renews them.
1. Gone: A tax credit for companies that engage in R&D.
This credit dates all the way back to 1981 and has been extended 14 times. The credit allowed companies that perform certain types of research to write off some of their expenses, from the wages of scientists to various equipment. The idea was to try to stimulate a little more domestic R&D and innovation.
Did this credit work? Many economists think so. One 2002 paper (pdf) in the Journal of Public Economics looked at the use of tax credits across nine countries over 19 years and found evidence that they "are effective in increasing R&D intensity." It's also worth noting that other countries use these credits much more heavily — the United States now ranks 24th in tax support for R&D. But that was before the latest expiration of the research credit.
2. Gone: A production tax credit for wind power
For years, U.S. wind farms have received a tax credit — worth 2.3 cents for every kilowatt-hour of electricity that they produce. That credit was extended again last year, with a special provision: Every wind farm that began construction in 2013 could qualify for the credit once it starts generating power. That led to a frenzy of development at the end of last year.
This credit has been fairly effective at boosting wind farms over the years: Wind power now generates about 3.5 percent of U.S. electricity, in no small part thanks to the tax break. But the fact that the credit constantly expires has also created a fair amount of uncertainty for the industry.
So what happens if the tax credit expires once and for all? The wind industry won't disappear entirely, as energy analyst Jesse Jenkins explains in this report. For one thing, there's still about 6,000 to 10,000 megawatts worth of capacity in the pipeline. Those are projects that broke ground in 2013 and will eventually get built. Meanwhile, in areas like the Great Plains and parts of Texas, wind power is now broadly competitive with fossil fuels. But the industry will certainly shrink to around 3,000 to 7,000 MW per year.
Some of those in favor of cleaner energy have argued that this credit should be reformed rather than repealed entirely. For instance, Sen. Max Baucus (D-Mont.) has proposed a tax credit that would favor all lower-carbon electricity sources, regardless of type. But, for now, the only thing being discussed is a one-year extension or nothing.
Cost to extend: Last year's extension cost $12 billion over 10 years.
3. Gone: Incentives for commuters to take the bus or train
No pants. And now, no tax credit? (Jessica Rinaldi/Reuters)
For the last two years, the tax code has treated commuters who take mass transit the same as those who drive. That is, if you take the bus or train to work, your employer can choose to cover $245 in expenses per month tax-free. And, if you drive, your employer can choose to cover $250 in parking costs per month tax-free.
But that changed on Dec. 31. Employers can still subsidize parking to the tune of $250 per month. But they can now cover only $130 per month in transit expenses tax free.
In essence, with the expiration, the tax code now favors cars, and there's some evidence that this change will induce more people to drive to work.
4. Gone: Tax relief for "underwater" homeowners
Ever since 2007, Congress has exempted homeowners from paying taxes on any mortgage debt cancellation. So, say you're an "underwater" homeowner who owes more on your mortgage than your house is worth. And the bank decides to forgive some of the loan (after all, it might be a better option than foreclosure). Under this earlier tax tweak, the homeowner didn't have to pay any taxes on that write-down.
This provision helped a number of Americans recover from the housing crash and pay down their debts more quickly. But it's now expiring — anyone who gets relief on their mortgage will now have to pay taxes on that amount. And there are still 6 million Americans who are underwater on their mortgage. (See David Dayen for more on this provision.)
Cost to extend: The one-year extension last year cost about $1.3 billion.
5. Gone: A $9 billion "sop for Wall Street banks and major multinationals"
Multinational corporations in the United States also lost a key tax break: The “Extension of the Active Financing Exception to Subpart F.” Sounds dull, right? It's not.
As my colleague Dan Eggen reported a few years ago, this provision, first created in 1997, allows manufacturers and banks to defer taxes when they engage in a special type of financial transaction known as "active financing." The break now costs $9 billion per year, and critics claim it encourages firms to create jobs overseas. But it's a top lobbying priority for companies such as GE and JP Morgan, who say that it helps them compete abroad.
Cost to extend: About $9 billion per year.
6. Gone: Part of a rum tax rebate program for Puerto Rico
Here's how this program worked last year: Congress levied an excise tax worth $13.50 per gallon on all rum produced in or imported to the United States. $13.25 per gallon of that tax money was transferred to Puerto Rico and the Virgin Islands, which used the revenue to support their rum industries.
But now the program, which dates back to 1917, is shrinking. Only $10.50 of the $13.50 per gallon will be transferred over this year. The rest will go to the U.S. Treasury.* (By the way, Puerto Rico's non-voting representative in the House, Pedro Pierluisi, has argued that the old tax set-up was too favorable to rum distillers.)
Cost to extend: About $240 million.
7. Gone: A tax break to help NASCAR build racetracks
This tax break allowed anyone who builds a racetrack to receive a small tax benefit through accelerated depreciation. (It was called the "NASCAR loophole," but it doesn't just help NASCAR.) Supporters claimed the break is necessary so that NASCAR can compete on a level playing field with other theme parks. But it's gone now, unless Congress decides to extend.
Cost to extend: About $50 million per year.
8. Gone: A raft of tax subsidies for energy efficiency.
(Flickr credit: ebiker)
Let's see. There was a tax credit for building new energy-efficient homes. There was a credit for people who bought energy-efficient appliances. Even a tax credit for "2- or 3-wheeled plug-in electric vehicles." (Yes, these things do exist: The Observer reported that e-bikes have become ubiquitous in New York, used for everything from Chinese food deliveries to expensive joyrides.) Now those are gone.
Cost to extend: Around $2 billion per year.
9. Gone: Tax credits for Hollywood films
Key grip: expensed! (Bret Hartman/The Washington Post)
Last year, studios in Hollywood and elsewhere could deduct up to $15 million of their costs if more than three-fourths of the movie's production takes place in the United States. (They could get up to $20 million in deductions if they produce the film in a low-income community.) No more!
Cost to extend: This tax break cost roughly $75 million per year.
10. Gone: A $250 deduction for teachers with school expenses
Until last year, elementary and secondary school teachers could deduct up to $250 worth of teaching supplies and expenses from their taxes. That just went away.
Cost to extend: ~$240 million per year.
You can find a much more complete list over at the Tax Foundation. Congress can still extend some or all of these tax breaks retroactively (that's exactly what lawmakers did in 2012, for instance). But, for now, these are all off the books.
* Update/correction: Clarified on the Puerto Rico rum tax. The amount transferred to Puerto Rico and the Virgin Islands will drop from $13.25 per gallon down to $10.50 per gallon.
Related: Unemployment benefits for 1.3 million workers also expired on Dec. 28. Here's why.