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Reviving Expired Tax Extenders Could Cost $150 Billion

May 8, 2019 | Taxes

For years, Washington has resigned itself to a patchwork of tax policy in place for one or two years at a time, allowing niche temporary tax provisions to expire, only to resurrect them a short while later. This practice has added to our mounting debt and undermined certainty in the tax code. There is little better example of how Congress routinely misses deadlines than the fact that Congress is considering reviving tax breaks that have been expired for 16 months and calling them "current policy."

This week, we joined with 11 other organizations in asking congressional leaders to ignore calls to revive temporary special-interest tax breaks known as “tax extenders.” The signatories span the political spectrum, but all agree that bringing back temporary tax breaks on a retroactive basis is bad tax, fiscal, and economic policy.

Recent tax extenders proposals would revive nearly 30 temporary tax provisions that expired at the end of 2017, plus one that expired at the end of 2018. In total, we estimate that making all the tax breaks permanent without offsets would add about $150 billion to the debt with interest, while extending them retroactively for 2018 and 2019 alone would cost over $30 billion.

2019-2029 Cost of Extending Expired Tax Provisions

Provision Extension through 2019 Permanent Extension
Biodiesel and renewable diesel incentives  $7 billion $39 billion
Allow itemizers to deduct medical expenses above 7.5% of income, rather than 10%* $3 billion* $29 billion
Forgiven mortgage debt excluded from income  $5 billion $18 billion
Excise tax credits for alternative fuel $1 billion $8 billion
Mortgage insurance premiums included in mortgage interest deduction $2 billion $7 billion
Empowerment zone tax incentives  $0.5 billion $3 billion
Deduction for college tuition and expenses $1 billion $2 billion
Railroad track maintenance credit <$0.5 billion $2 billion
Accelerated depreciation for business property on an Indian reservation  $0 billion $2 billion
Allow motorsports racetracks to be depreciated over 7 years <$0.5 billion $1 billion
Allow racehorses to be depreciated over 3 years $0 billion <$0.5 billion
Other provisions  $3 billion $20 billion
Total ~$25 billion ~$130 billion
Interest costs ~$7 billion ~$20 billion
Total, with interest ~$33 billion ~$150 billion

* The medical expense deduction threshold expired at the end of 2018, while all other listed provisions expired at the end of 2017, Source: Joint Committee on Taxation, Congressional Budget Office, CRFB calculations. 

The temporary nature of tax extenders makes it hard for businesses and individuals to plan and invest. Tax provisions intended to incentivize certain behaviors can't work if the provisions are extended retroactively; instead of providing an incentive, the provisions just provide a windfall based on past behavior.

Now that Tax Day has passed and most 2018 returns have been filed, any changes would require people to amend their already-filed tax returns. 

With our debt at near-record levels, we do not have the fiscal space to keep adding temporary tax breaks to the national credit card. Policymakers had several chances to make these "zombie tax extenders" permanent, but chose to let them expire. If lawmakers choose to revive any of these provisions, they should offset the costs with spending savings or revenue elsewhere in the budget. Tax extenders not only add to the deficit but further encroach on our ability to craft sound tax, economic, and fiscal policy.

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