“Oh yes, they’re the great extenders”…the package of tax cuts that Congress routinely extends every year or two rather than making them a permanent part of the budget so that you’d, you know, have to come up with offsets to pay for them (see table 2 here for a list of the expiring tax breaks).
If you Google around on the topic, you’ll be hard pressed to find anyone with much good to say about the extenders package—here’s Steve Wamhoff from Citizens for Tax Justice, with a pretty piercing critique. Joshua Smith of the Economic Policy Institute—they’re typically quite dovish on budget matters–weighs in here, with a detailed look at the flimsy utility of various provisions.
Yet, despite their aggressive spending cuts in recent years, culminating in sequestration, relevant committees in both chambers of Congress have advanced unpaid-for extender packages consistent mostly of business tax breaks (however, there are differences between the House and Senate that will have to be reconciled, so the deal isn’t closed yet). And remember, this is the same Congress that refused to extend unemployment benefits without offsets.
The justified criticism of the package is really in two parts. One, we’re wasting valuable revenue by subsidizing activities that would happen anyway. Oftentimes, for example, tax credits like the one for R&D are applied retroactively—for research and product development that’s already been done. I suppose one could argue that the beneficiaries of the credit anticipated the retroactive credit, but this smells a lot more like a wasted tax break than an efficient incentive.
But it’s the second part of the critique that seems inarguable to me: the phony budgeting that intentionally conflates temporary with permanent. There are, of course, legitimately temporary tax policy measures, such as those associated with stimulus in recession, like the payroll tax holiday that expired at the end of 2012 (too early, IMHO).
Interestingly, the Republican-led House Ways and Means Committee actually voted to make six of the business tax cuts in the extenders’ package permanent, but without any offsets to pay for the lost revenue. That led my CBPP colleague Chuck Marr to point to a clear fiscal double standard:
By not paying for the costs of making these provisions permanent, the proposal contrasts sharply with congressional demands to pay for other budget priorities. The Murray-Ryan budget deal of December partly and temporarily eased the deep sequestration cuts that were damaging important programs and services (and slowing the economy) on the condition that Congress fully offset the costs…And, at substantial human and economic cost, Congress has not restored urgently needed unemployment benefits in part due to disagreements over how to offset the $10 billion cost — and it’s clear the legislation won’t pass without such offsets. Yet, the House Ways and Means Committee [approved] bills…to make permanent costly tax breaks — including a tax break for the overseas profits of Wall Street banks — without offsetting any of the costs.
Marr also documents some revealing cherry picking by the House conservatives. The parts of the extenders they make permanent are corporate tax cuts that cost $300 billion over ten years. But they’ve nothing to say about the pro-work, anti-poverty refundable credits, also in the extenders package, that expire at the end of 2017. Over to CC Huang:
While the Ways and Means leadership rushed to make these tax breaks permanent, they ignored much-needed extensions of key provisions of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) that boost millions of working families’ incomes while strengthening work incentives. These provisions will expire at the end of 2017 unless Congress acts. If that happens, many low-income working families will lose all or part of their CTC, marriage penalties will go up for many working married couples, and many working families struggling to raise more than two children will see their EITC fall.
In fact, as the table below shows, allowing these critical improvements to the CTC and EITC to expire would mean that about 12 million people nationwide, including 7 million children, would fall into or deeper into poverty.
No one, I’m sure, is surprised to learn about such double standards and upside-down preferences. End of the day, the tax breaks we antiseptically call “extenders,” may well be extended, without offsets. For all the clamoring about fiscal rectitude, when it comes to helpful their friends, it’s business, as in corporate tax breaks, as usual. But it ain’t over til it’s over, and my colleagues and I are not the only ones who’ve noticed the hypocrisies herein. So stay tuned.