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Can somebody explain to me why the House agreed last week to restore 50+ tax subsidies without paying for them (and thus adding $42 billion to the deficit) and 10 minutes later approved a new tax subsidy that it insisted on paying for?
It can’t be the merits of the recipients. By now, TaxVox readers know that the expired tax breaks included such worthies as preferences for race horse owners, Puerto Rican rum manufacturers, and TV and film producers. The beneficiaries of the new subsidy, called the Achieving a Better Life Experience (ABLE) Act, are young people with disabilities.
Nor can it be economic efficiency. There is little evidence that the renewed preferences encourage economic activity that would not have occurred anyway. And even if they did, why would we want to borrow billions of dollars to subsidize these sorts of activities?
It isn’t the law. Congress has “pay-go” rules that require paying for all tax cuts with offsetting tax hikes or spending cuts. The rules do not distinguish between expired tax breaks and new ones. At least they don’t until Congress waives them for the old tax breaks.
It’s not the cost. Restoring the expired provisions for one year adds $42 billion to the nation’s debt . If they stick around for the next decade, as they likely would, they’d add $800 billion in red ink. By contrast, the ABLE Act would reduce taxes and boost spending by about $2 billion over 10 years.
Could it be because the expired tax preferences are ostensibly temporary? Maybe, but why would that be? The paygo rules don’t distinguish between temporary and permanent tax breaks. Borrowing a billion dollars is borrowing a billion dollars, whatever the form of the bill.
Yet, backers of the “extenders” argue that failing to restore an expired tax break is somehow a tax increase while creating a new one is, well, new. By this standard, old tax cuts deserve to be grandfathered, regardless of their merits, while new ones do not.
Over the past few days, Maya MacGuineas of the Committee for a Responsible Federal Budget and J.D. Foster of the U.S. Chamber of Commerce have had a nice debate over this issue. Maya says tax cuts should be paid for. J.D., who has a very different view of the budget baseline, says Congress should increase the deficit to restore these tax breaks because, after all, everyone knows they really are permanent. Thus we are not really adding to the deficit.
J.D. is trying to have it both ways. In his view, it is OK to hide the true long-term cost of tax breaks by pretending they will be on the books for only a year but then routinely extending them. Yet it is also OK to assume they are permanent (even after they have already expired) when it comes to figuring whether restoring them should be “free.” You don’t get to do both.
And keep in mind that they have in fact expired. J.D. writes, “Allowing tax extenders to expire is a tax hike.” Maybe, but these provisions expired nearly a year ago. As I wrote the other day, they are off-the-books. They no longer exist, except that “everyone” knows they do.
I wonder if the Chamber thinks there ought to be some sort of statute of limitations on ignoring paygo. What if President Obama proposed restoring the payroll tax cut that was in effect from 2009 through 2012 but which Congress let expire as part of the fiscal cliff deal in January, 2013?
Would that be exempt from paygo rules as well? After all, it died at the beginning of 2013. The tax package at issue today died at the end of the same year. Does a tax cut lose its grandfather status after it is dead for two years, but not for one? What about 18 months? Seventeen? Do I hear 16 months and 5 days?
The House did the right thing by paying for ABLE. There is no reason why it should not have done the same for 50+ other tax breaks.
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