The Tax Bill Didn’t Fix the Usual Tax Extenders Giveaway

Same Old Tax MorassThe Tax Bill Didn’t Fix the Usual Tax Extenders GiveawayThe recent tax bill did little to fix the usual 'tax extenders' giveaway.

Budget & Tax,  | Quick Take
Jan 5, 2018  | 6 min read | Print Article

On Dec. 20, Senate Finance Committee chairman Orrin Hatch, R-Utah, introduced a wide-ranging tax bill that includes provisions important for individuals, families and individuals.

No, I’m not talking about the “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” – that’s the full name of the major tax cut legislation which the House passed that very same day and the president signed into law two days later. I’m referring to the Tax Extender Act of 2017, a more briefly named and shorter 47-page bill that includes special interest breaks for rum producers, NASCAR track operators,and biofuel producers, among others.

The reason the bill is so short is that in most sections of the bill, the legislative language simply says that in a particular section of the tax code, the date Jan. 1, 2017 or Dec. 31, 2016 will be replaced with the date Jan. 1, 2019 or Dec. 31, 2018. Aptly named, the bill simply extends these provisions of the law. While the Congressional Budget Office has not yet released an official score for the bill, past tax extender bills have had the effect of increasing the deficit by $100 billion, give or take a few billion.

While I am not a fan of the larger tax package that passed last month, I thought, for a few weeks, that at least it was going to eliminate some of these very narrowly tailored tax breaks that have masqueraded as two-year “temporary” tax provisions, for years, even decades. There are three reasons for this budgetary sleight of hand. First, extending these provisions for only two years masks their true cost. If every two-year provision was extended indefinitely, as they effectively are, the costs would be much higher. Second, packaging all of these narrow provisions together means they never get debated on their merits. Some of the tax breaks in the extenders bill may be good policy, but if so, then there should be no reason those policies are not openly debated and added to the permanent tax code.

Finally, and most cynically, never “fixing” the provisions is a boon to lobbyists, who get paid to fight for the tax extenders; and to lawmakers, who reap campaign contributions and deliver for their constituent special interest – every couple of years.

For years, politicians have pointed to the extenders bills as evidence the tax system is broken, that the tax code had become littered with special interest provisions with no thought about whether those different breaks undermine each other, whether they are obsolete or are just plain giveaways to industries with particularly effective lobbyists. Extenders have almost always hitched a ride on must-pass legislations, from the bank bailout bill in 2008 to the fiscal cliff deal in 2013.

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Which brings me to the timing of this particular extenders bill. Congressional leadership made the tax cut package a political must-pass proposition. It made permanent changes to tax law. It was a perfect opportunity to tackle the problem of the temporary race horse owner’s tax break or the credit for two-wheeled plug-in electric vehicles, either by including them in the final package or eliminating them all together on the theory that the changes and cuts in the larger package provide all the relief these special interests need.

In fact, the larger package did that for writing off the cost of productions of film, television or live theater upon release, effective Jan. 2, 2018. But the Tax Extenders Act of 2017 also includes an extender for the film and television expensing rules – since the original “temporary” provision expired at the end of 2016, the extender bill retroactively extends it for the duration of 2017. The other 35 tax breaks weren’t so lucky to be included in the larger bill, so their lobbyists will be back with their requests before the end of this calendar year.

The larger tax package also created opportunities for the practice of tax extenders to not only thrive, but grow. There is a new two-year tax break for craft beer producers, and a new, two-year tax credit for employers that provide family and medical leave. And that film and theater provision? It expires in 2022.

The House has displayed some reluctance to take up the tax extenders bills, but the Senate has found ways to overcome that reluctance in the past (see all of the above examples cited above). And given the many, many must-pass packages coming down the pike – budget levels, continuing resolutions, disaster funding and, eventually, the debt ceiling – there is a good chance the Senate will be able to persuade the House to overcome its reservations again.

The mess of extenders is only one example why the larger tax package bill was not reform, far from it, and represents a squandered opportunity that had been 30 years in the making.

Originally published on January 5, 2018 in U.S. News & World Report