Earlier this week, Senate Finance Committee Chair Ron Wyden (D-Ore.) unveiled his proposal to retroactively renew the “tax extenders”—a group of just more than fifty “temporary,” unrelated tax incentives, breaks, loopholes, and outright giveaways that Congress routinely extends as they lapse.
My earlier analysis of this abdication of responsible policymaking concluded that instead of renewing the entire slate of tax extenders, lawmakers should conduct a thorough review of each individual provision to see if it efficiently targets useful policy goals. They should then improve and make permanent the provisions that pass muster, and shelve those that don’t.
Taking a close look at each tax incentive on a case-by-case basis is absolutely necessary. Some of the policies, like the “active financing exception”—a loophole by which financial services firms and manufacturers can defer U.S. taxes on overseas income from specific types of financial transactions—are simply giveaways to some of America’s largest corporations. (There’s a reason why keeping this provision around is a “top lobbying priority for companies such as GE and JP Morgan.”) Meanwhile, other tax extenders seem to benefit society—such as the provision that lets teachers deduct $250 worth of school supplies they buy for their classrooms with their own money—but these are regressive, and could better accomplish their goals (in this case, decreasing the cost of school supplies as borne by teachers) outside of the tax code (say, by giving more money directly to schools). For still other provisions, like the ones that benefit thoroughbred racehorse owners or Puerto Rican rum distillers, the punchlines just about write themselves. And because the extenders would go into effect retroactively, it’s hard to claim they’re helping incentivize any particular desired behavior.
While Sen. Wyden’s initial draft left out some familiar tax incentives—ones benefitting NASCAR racetrack developers, Hollywood movie producers, wind energy producers, and multinationals with sharp accounting departments—many of these items (including the NASCAR tax break, the wind production tax credit, and the “CFC look-through rule”) were inserted back into the bill, either in an updated draft early this morning or during today’s Finance Committee mark-up. Including those reinserted provisions, the Senate Finance Committee’s two-year renewal of the extender package will cost the federal government nearly $90 billion over the next decade. There are no measures to offset this cost.
It’s true that the deficit is falling quickly (actually too quickly for an economy that’s still suffering from a lack of aggregate demand), but that doesn’t mean that Congress should get a pass for not paying for this tax extender bill.
Deficit-financing of new programs is economically sensible if the programs will boost demand, or aid those who have been hurt most by the Great Recession and the plodding recovery—but many of these tax extenders do neither. And Congress has been remarkably inconsistent with its desire to find “pay-fors.” The Senate repeatedly blocked an extension of emergency unemployment benefits—which are one of the most stimulative forms of government spending—because the proposed cost offsets were deemed to be “budget gimmicks.” (While they are indeed “gimmicks,” offsets for such counter-cyclical measures are unnecessary in the first place.)
Tax extenders should neither be allowed to be extended en masse so long as they’re paid for (as some commentators have called for), nor should they be extended and indiscriminately be allowed to add to the deficit. Instead, those that truly aid the recovery and help the most vulnerable populations should be made permanent, and the rest can be scrapped. (The exceptions, of course, are incentives that provide near-term stimulus because they are temporary, though there would have to be a high burden of economic proof necessary to extend such provisions, which may be better-targeted as spending programs than tax incentives.)
We can take some solace in the fact that that House Ways & Means Committee Chair Dave Camp (R-Mich.) is at least going through the motions of carefully culling the list of provisions within the tax extenders bill, and Sen. Wyden’s initial draft attempted to leave out billions of dollars’ worth of expiring provisions he could have included. However, it is increasingly clear that tax extenders—which collectively represent regressive giveaways to wealthy individuals and well-connected industries (especially those with armies of lobbyists)—will be allowed to simply add to the deficit, while necessary priorities like emergency unemployment benefits will be allowed to lapse, even if they are ostensibly paid for.