The Tax Extenders Ride Again
The other day, the House Ways & Means Committee routinely approved dozens and dozens of tax breaks. Hardly anyone even noticed.
They should have. The committee’s largess would cost $55 billion over the next 10 years. Most of these provisions, aimed at encouraging people or businesses to buy or sell something or other, are awful in their own right. The awfulness is compounded by the fact that these incentives must be constantly renewed. At least the panel does propose to pay for these goodies, although most of the revenue won’t arrive until after 2012.
These tax benefits have become known as extenders—temporary provisions that expire every year or three. These are an annuity for lobbyists, who create the Coalition for the Extension of Thus and Such, and run up their billable hours by plugging these ideas in the corridors of Capitol Hill. But besides helping some suits make a few more boat payments, they have no discernable economic benefit.
These provisions are, as a group, the worst kind of industrial policy. For instance, not only are there special tax breaks for fuels made from biomass, there is an extra special goodie for turning chicken poop into jet fuel. Now, this may be a perfectly laudable goal, but does it really need a tax incentive?
Then, there is the research and experimentation credit. Former Treasury Secretary Paul O’Neill got himself into no end of trouble when he said the credit never expanded business research by a nickel. Companies, he said, happily shuffled costs so they could maximize the tax break, but did only the research they were going to do anyway. Every business exec I ever talked to agreed with him. Yet the credit gets extended year after year.
The Queen Mother of extenders, of course, is Alternative Minimum Tax relief. That one, which will cost more than $50 billion for just one year, is not in this bill. But it will also be taken care of—sooner or later. Keeping these provisions alive has such strong support in Washington that extender bills become an opportunity for adding yet more special interest benefits to the Tax Code. I can't think of a single temporary tax break adopted this century that has actually been allowed to expire.
Inertia and habit are powerful forces. But extenders are an especially bad habit, and we’d all be much better off if Congress could shake it.