The voices of Tax Policy Center's researchers and staff
There are two simple ways to end the tiresome seasonal drama over faux-temporary tax cuts known (with a stunning lack of accuracy) as the extenders. First, call them what they are: Expired tax breaks that have been off the books for nearly a year. Second, make Congress pay for any of the special interest subsidies it chooses to restore.
These are tax cuts just like any other, and they should be financed with offsetting tax hikes or spending cuts. There is no good reason why Congress should be allowed to add hundreds of billions of dollars to the federal debt to benefit favored taxpayers.
Requiring Congress to pay for these tax breaks would not only be good for the nation’s fiscal health, it would impose much-needed discipline to a process that has been thoroughly corrupted in recent years. It would encourage lawmakers to at least consider the merits of dozens of allegedly temporary tax breaks before reviving them through the policy equivalent of a free lunch.
It looks as if Congress is about to do it again. After an aborted attempt to make some of the expired provisions permanent, lawmakers may be about to mindlessly restore more than 50 tax breaks retroactively and perhaps extend them for 2015. In March, the Committee for a Responsible Federal Budget estimated the price tag for doing this would top $75 billion. Keeping them around for a full decade would add nearly $800 billion to the federal debt.
To understand just how corrupt this process has become, let’s look at how an ordinary tax cut becomes a zombie “extender.”
First, Congress passes a new tax break that benefits a favored industry or group of individual taxpayers. To mask its true cost, the provision often is labeled “temporary,” even though its sponsors fully intend for it to remain on the books indefinitely. Then it is extended. Year… after year…after year.
This happens because JCT must give a 10-year budget score to a tax cut. A bill that permanently reduces revenue by $1 billion-a-year would be scored as costing $10 billion over 10 years. But if it has an official lifespan of only one year, JCT would say it loses only $1 billion over a decade—making it easier to pass.
Btw, many of the same politicians who were outraged last month when MIT professor Jonathan Gruber said the Affordable Care Act was designed to game budget rules pretend their favorite tax cuts are temporary for much the same cynical purpose.
Real time-limited tax breaks are not necessarily bad. Congress may want to address a short-term problem, such as the recent recession, with a transitory tax cut. And, in theory, a short leash gives lawmakers an opportunity to review the subsidy each year. If it proves unnecessary or inefficient, it can be revised or dropped. In theory.
But not in practice. Once one of these tax subsidies becomes law, it joins a tangled web of purportedly temporary tax cuts. They often have nothing in common besides their artificial temporariness and a tacit agreement among lobbyists and lawmakers that they will all be extended together.
Thus, they become immortal. Lawmakers rarely bother to hold hearings to determine their costs and benefits. While researchers do write papers that often question their efficacy, sources tell me these reports are immediately filed in a locked room in the basement of the Cannon House Office Building. But I couldn’t possibly comment.
Now, the best part: Not only does Congress ignore evidence that these tax breaks are a waste of money, but once they are labeled as extenders, it exempts them from the usual budget rules. So Congress borrows billions of dollars more each time it extends--or restores--them. Unlike new spending or even other tax cuts, they miraculously no longer need to be paid for.
Once, Congress did pay to extend most temporary provisions. But that touch of fiscal responsibility has become little more than a quaint memory.
As I’ve noted in previous posts, there is an honest argument about whether allowing an existing tax cut to expire on schedule is a tax increase. But in the case of this year’s extenders, that train has long-since left the station.
Most of these provisions died on December 31, 2013—nearly a year ago. They are off-the-books. Inoperative. Expunged. No amount of clever framing can change that.
While these subsidies may be familiar, Congress is passing new tax cuts that will eventually add hundreds of billions of dollars to the national debt.
And it ought to pay for them.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.