Time for a Serious Review of Tax Extenders

By :: April 26th, 2012

A House panel today began what could be the beginning of a remarkable exercise: It is reviewing the merits of dozens of expiring tax provisions that litter the Revenue Code. I hesitate to say so, but this could be a case of Congress doing its actual job.  

By the Joint Committee on Taxation’s count, 75 of these tax extenders have already expired this year or will do so before New Year’s Day. That doesn’t include tax breaks related to the Transportation Trust Fund or federal disaster relief.

It is quite a collection: Subsidies for both oil and gas and alternative fuels, enhanced charitable contributions for computers, the infamous NASCAR race track give-away, and special tax breaks for movie and TV producers, mining companies, railroads, rum, and investment companies to name only a few. And, of course, the Research and Experimentation Tax Credit that has taken on mythical status in Washington yet seems to do little or nothing to enhance research.    

The House Ways & Means Select Revenue Measures subcommittee began its review today by hearing from fellow Members of Congress—most of whom wanted to preserve one subsidy or another.

This effort may not only be good government, it also takes certain amount of courage on the part of Committee Chair Dave Camp (R-MI) and subcommittee chair Pat Tiberi (R-OH).  After all, eliminating any tax breaks is heresy in some precincts of the GOP. Yet Camp seems prepared to take some on.

Now, a cynic might suggest that this review, coming in the heat of the election season, is little more than a campaign finance shakedown. The temporary nature of these tax breaks serves two very valuable purposes for Members of Congress. It allows them to misrepresent the true 10-year budget cost of these subsidies.  And, when it comes to campaign contributions, they are the gifts that keep on giving.  

The mere mention that Congress is reviewing an extender is good for a fundraiser or two, to say nothing of helping fill the coffers of the lobbyists who are often themselves ex-members or former Hill staffers.

Still, the only real benefit of making tax subsidies temporary is to give Congress a chance to review them. In a perfect world, lawmakers would consider the economic costs and benefits of each provision and choose whether or not to continue it (of course, in a truly perfect world, Congress  would do this before it ever passed the bill in the first place, but let’s not get carried away).

This review almost never happens. Instead, after much delay and speechifying, Congress mindless extends the subsidies en bloc.

The political pressure to do this is immense. Today, for instance, the Business Roundtable, which represents CEOs of many of the nation’s biggest companies, told Congress   it “strongly supports the immediate and seamless extension of the expired business tax provisions from last year.”

My guess is that if you asked one of these corporate execs to name just three of the dozens of tax breaks the BRT has so wholeheartedly embraced, you’d get a blank stare. Yet, this group—which regularly demands that Congress address the budget deficit--wants all the business extenders extended (it said nothing about individual tax breaks that are also expiring).

So, political cynicism aside, give Camp credit for beginning a process that may lead to a serious review of these tax code subsidies. Now, let’s see if he follows though by proposing to get rid of some of the worst.   

 

10Comments

  1. Ralph H  ::  3:36 pm on April 26th, 2012:

    Why not let all end in exchange for a 20% C tax rate. Corporations could save money by laying off lobbiests and tax accountants. Tsx paying firms like Walmart would gain, tax dodgers like GE would lose. Maybe we could couple this with allowing foreign tax repatriation at Half the statutory rate (10%), and gain a lot of money into the USA.

  2. Tax Roundup, 4/27/2012 « Roth & Company, P.C  ::  9:16 am on April 27th, 2012:

    […] time is it? “Time for a Serious Review of Tax Extenders” […]

  3. Carl Davis  ::  10:45 am on April 27th, 2012:

    Oregon recently had a lot of success using expiration dates as a catalyst for seriously reviewing, and actually paring back business tax breaks. It’s unfortunate the federal government hasn’t managed to do the same with the tax extenders.

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  5. Michael Bindner  ::  11:16 pm on April 30th, 2012:

    Only if dividend rates go back up to the normal income rate.

  6. Michael Bindner  ::  11:17 pm on April 30th, 2012:

    I am providing comments to this hearing as well.

  7. Michael Bindner  ::  11:17 pm on April 30th, 2012:

    Chairman Tiberi and Ranking Member Neal, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee Subcommittee on Select Revenue Measures. Congress
    Doing nothing is a possible solution to almost every issue, especially expiring tax provisions. While this is possible, it is not likely, as each of these provisions has adherents, as testimony, comments submitted for the record and calls to staff have likely demonstrated. If the economy is more robust in December than current forecasts suggest, there is always the possibility that these provisions will be allowed to expire by the President with all other temporary tax provisions if the House majority proves intransigent on negotiations to increase revenue. Indeed, the hint that he might do so may be the strongest impetus to compromise, as wealthier citizens have much more to lose from letting the Clinton era tax rates concern than the average taxpayer.
    Congress and the Administration could do the minimum required. Sadly, this is the most likely scenario given the state of the national economy. The most likely way is to delay action until after the election and, as a package, extend the debt limit through December 2013 in exchange for extending the expiring income, payroll, unemployment and medical payment provisions for an equal period of time, including extending the temporary tax provisions while accepting the temporary pain of one year of sequestration.
    A slightly more ambitious version of this scenario, which leaves less to chance as far as the impact of the election (as a lame duck President has no interest in any compromise at all) is to extend the debt limit, doc fix suspension, temporary expiring tax cuts, the payroll tax cut, extended unemployment and tax rates for middle class and wealthy taxpayers through December 2013 in exchange for making certain tax cuts for lower income Americans permanent, including the 10% tax rate and expanded Child Tax Credit – offsetting some or all of the spending cuts that have already been agreed to. This allows discourse on tax reform without holding our most vulnerable citizens hostage.
    Should the President indicate that he is likely to let gridlock rule the day, a medium ball solution is more likely. Opposition to a balanced solution will evaporate should he hint he will accept automatic tax cuts increases, as major Republican donors tell their members to compromise. The balanced solution is some combination of the cuts and tax reforms supported by the majority of the Fiscal Commission, also known as Bowles-Simpson, and the proposals of the Bipartisan Policy Center, also known as Rivlin-Domenici. Many of these proposals are similar and where they coincide seems like a fruitful place to start drafting legislation. Using the congressional budget process to begin enacting these provisions could occur in regular order, with the Department of the Treasury playing a supporting role in writing tax reform language. Under such a scenario, many expiring tax provisions could fall, but this is less likely without radical change.
    The large ball game would be to actually balance the budget and enact radical reform in entitlement revenue and spending provisions, a shift from income taxes for most filers to consumption taxes and higher tax rates on those most ability to pay. The Center for Fiscal Equity proposes a large ball solution with four major provisions:
    • A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
    • Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments. Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
    • Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
    • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support, health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.
    Under this scenario, many temporary tax provisions would no longer be needed, since the nature of the tax code would change. With the expiration of the corporate income tax, provisions granting exceptions to it would not longer be necessary and would stick out like a sore thumb when attached to any kind of consumption tax covering both wages and profits. Likewise, the income surtax we propose will have few, if any, deductions. Radical reform is the surest way to overcome resistance to allowing tax extenders to permanently expire.
    Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff.

  8. Ralph H  ::  4:38 pm on May 1st, 2012:

    I would propose that the additive combination of the dividend and C corp rate match the top Individual rate. That way there is no advantage or disadvantage in being a “C”.

  9. Edward R. Hull, CPA  ::  3:14 pm on May 3rd, 2012:

    Looking for these washington hookers to do anything other then line their own pockets and those of their well connected jons is a waste of time. Vote them all out first and you might see some real “tax reform”

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