The tax extender package: a lame duck turkey

November 26th, 2014 at 10:16 am

On the assumption that, like me, you’re either running to get somewhere for Thanksgiving or preparing for the arrival of a bunch of peeps running towards you, I apologize for breaking in with a weedy tax discussion. But break in I must, as while you’re innocently stuffing a bird, candying the yams, and burning the rolls, there’s an effort afoot to jam some nasty tax policy through the system.

I’m talking about the so-called “tax extenders” package, a dog’s breakfast of permanent tax breaks mostly for businesses that would add over $400 billion to the ten-year budget deficit without doing anything for low-income, working families. In a particularly nefarious twist, the package would increase pressure to further cut domestic programs far below the already unsustainable level imposed by sequestration.

As my CBPP colleagues point out:

Two-thirds of its more than $400 billion in tax benefits would go to businesses, and it doesn’t continue the two temporary tax provisions most important for reducing poverty and increasing opportunity among low-income working families with children.  Those provisions, improvements in the Earned Income Tax Credit (EITC) and the low-income component of the Child Tax Credit (CTC), lift more than 16 million people out of poverty or closer to the poverty line each year, including nearly 8 million children.  By making a slew of the tax extenders permanent while excluding the CTC and EITC provisions, the package risks stranding those provisions and making it less likely they will continue beyond 2017.

Tax extenders are a series of allegedly temporary tax breaks that are conventionally extended, unpaid for, year after year. These include tax credits for research and development, expensing deductions for small businesses, deductions for state and local sales taxes, and more. To put them in the annual budgets that Congress and the President construct each year would mean they’d either have to be paid for with higher taxes or spending cuts elsewhere or added to the deficit. So the usual practice is to just extend them by stealth every year and hope nobody notices.

To their credit, the White House has called attention to them this year for a number of reasons. First, to reveal the hypocrisy of the deficit chicken hawks for whom fiscal rectitude is a tactic to be invoked when it’s politically expedient. If you thought House Republicans were genuinely concerned about long-term deficits, this episode should disabuse you of that quaint notion. To be clear, however, there’s bipartisan support for this extenders package.

Second, it’s revealing of both Congressional priorities and the influence of corporate money in politics that the EITC and CTC provisions are left out of the package.

Finally, by making the extenders permanent and unpaid for, the revenue baseline would be permanently lowered (i.e., revenues that were expected in the future would no longer be so). Therefore, since the cost of the extenders would no longer have to be offset, revenue-neutral tax reform will have to cross a much lower bar in terms of the amount of revenue needed to be collected.

As the CBPP report points out, “instead, [tax reformers] would get a windfall of more than $400 billion they could use to cut the top tax rate more deeply, curb fewer unproductive or low-priority tax breaks, or both. And as noted, one likely result would be to place greater pressure on key programs — both those already squeezed by sequestration, such as education and basic research, and programs ranging from Medicaid to veterans’ programs.”

It is probably not realistic to fail to extend any of these tax measures at all. Many businesses have been operating this tax year under the reasonable assumption that these measures would be retroactively applied. So, a short extension, say for a year, during which Congress either figures out how to pay for them or phases them out would be a fiscally responsible course of action.

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5 comments in reply to "The tax extender package: a lame duck turkey"

  1. Larry Signor says:

    I love the title! It seems tax breaks, such as the 2% payroll tax break (now defunct), are only temporary when they benefit the poor and middle class. A short extension will only set up another stand-off down the road. I hope President Obama is serious about his threatened veto of this very upwardly redistributive bill.


  2. SeattleAlex says:

    What the heck JB, no pesky brother-in-law primer this year?? That’s usually one of my favorite posts of the year!


    • Jared Bernstein says:

      IKR! My bad. Too busy w other stuff. You’re on your own til Xmas! Until then, just ask for evidence which he’s very likely lacking. And remind him that ‘I saw it on Fox’ isn’t evidence.


  3. Robert Salzberg says:

    All tax extenders should be rewritten as stand alone spending programs in the budget. The white hot spotlight of the budget, in a functional Congress, would separate out the turkeys and the pork, leaving the side dishes of decent policy we’re all thankful for and worthy of funding.


    • Larry Signor says:

      Robert, You are correct…””that which we call a rose / By any other name…” is still a thorn bush. “Tax extenders”, what a nonsensical thing to call an upwardly distributive subsidy.


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