Moving the Tax Expiration Goal Posts

The President may choose to submit a budget in which he extends the Bush tax cuts only temporarily—say for two years, rather than permanently as was originally planned.

This is a bad idea, but it may turn out to be the best idea available.

Enacting temporary policies, when they are really meant to last, is a blatant budget gimmick used to make policies easier to pass (oftentimes by using reconciliation) and to hide the policy’s true cost.

Congress already does that with the AMT patch; a host of business tax credits; and with the postponement of planned Medicare cuts, or the “doc fix”. Even the original Bush tax cuts where passed on a temporary basis, though supporters always planned for them to be permanent.

That said, extending the tax cuts (which under current law expire at the end of 2010) only temporarily may be the best worst option we have. As EconomistMom has argued, it could help buy a bit of time to allow for a sane discussion about how to reduce the deficit and stabilize the debt.

Basically, it moves the action-forcing event of the tax cut expiration out two years. This is hopefully not as the beginning of an ongoing game of moving the goal posts, but rather because with the economic crisis, it was too early to engage in a serious discussion about how to fix tax policy and the budget over the past year. Another two years could do the trick of providing enough time to come up with a credible plan. It doesn't make the politics any easier, but it has been a crowded agenda over the last year. Then if Congress fails to act, the tax cuts should expire as set in law – a scenario few policymakers want.

Basically this approach keeps the tax expiration “stick” alive for a bit longer to see if we can’t find a way out of this mess through a sensible budget right-sizing plan.

It’s not pretty, but bad budgeting may be a clever way to get us out of the bad budget situation.