Déjà vu: As Congress returns to work from summer recess, lawmakers will soon have to pass appropriations to prevent yet another government shutdown.
They may also take up yet another round of what are called “tax extenders,” which are narrow tax breaks that are frequently renewed on a temporary basis and frequently revived past the date of their expiration. Tax extenders are a terrible way to make policy, and Congress should find a better way to legislate than by continually extending short-term tax breaks and enacting retroactive changes.
The Tax Cuts and Jobs Act of 2017 eliminated several tax breaks in exchange for lower overall individual and corporate income tax rates, putting the future of tax extenders in question. Despite this, the House and Senate have each drafted legislation with short-term renewals that include tax breaks for well-connected industries.
This particular group of extenders has held on for the better part of a decade, with some dating to 2012, yet these tax provisions have not been fully included in permanent tax law. Tax extenders not only create unnecessary market distortions, but also reward well-connected industries with favorable tax treatment.
One reason these tax extenders regularly reappear as short-term breaks is to achieve a more favorable budgetary score. Despite the fact that most extenders are repeatedly extended, official budgetary scorekeepers are forced to take their “expiration dates” at face value when scoring their fiscal impact. This means that tax breaks which are repeatedly extended are scored by the Congressional Budget Office as only lasting one or two years. As the CBO takes Congress at its word, spending continues, leading to unexpected pitfalls in the budget.
The current crop of tax extenders, some up for their fifth or sixth renewal, will likely be revisited in the Senate Finance Committee. Earlier this year, the Committee established six task forces to conduct a comprehensive review of the extenders, the first such deep dive in recent memory. The most recent task force report recommends to end the process of short-term extenders, noting their “significant negative effects.”
As two reports remain forthcoming, the final action the Committee will take on these extenders remain to be seen, however, there seems to be consensus support for a permanent solution from both sides of the aisle.
Furthermore, this year’s extenders are almost entirely retroactive, providing tax cuts for industries two or more years after business decisions were made. This means that extending the tax extenders would in no way influence corporate behavior or protect jobs, eliminating any justification for their continuation.
Arnold Foundation chairman John Arnold framed the issue with retroactive extension of tax extenders best when he put it this way: “Corporate lobbyists descend on DC, warning lawmakers that if they don’t renew the retroactive tax breaks that expired in 2017 companies will have to lay off employees last year.”
Lawmakers should strive to make the tax code simpler and fairer, but the tax extender process works against this by introducing unnecessary complexities to the system. Moreover, it clouds the budget picture by artificially inflating the CBO’s revenue projections. It’s time for Washington to end its cycle of erratic policy making, and reach a permanent solution for tax extenders.
Jacob Plott is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.
