Committee for a Responsible Federal Budget

Note to Congress: Pay for the Extenders, or Let Them Expire

Jun 14, 2012 | Taxes

A POLITICO article reports on an effort underway at the Senate Finance Committee to negotiate an extension of the "tax extenders," narrow temporary tax provisions that are routinely extended. The article states that an agreement on an extension "could send a signal to financial markets that the two parties can find some common ground ahead of the looming fiscal cliff facing Washington at year’s end." Here's POLITICO's description of what happened:

At a closed-door Senate Finance Committee meeting this week, Chairman Max Baucus (D-Mont.) implored members on both sides of his tax-writing panel to help advance a pre-Election Day package covering an array of business tax breaks known as “tax extenders,” which could cost up to $35 billion depending on the scope of the plan. But Baucus’s pitch came with a catch: Lawmakers need to keep the expiring Bush tax cuts, the so-called Buffett rule and other politically charged issues out of the debate. 

We're not convinced this would be such a breakthrough. If the "clean" extension in the article simply refers to the idea that the extenders will be dealt with separately from the rest of the fiscal cliff, that's one thing (though better to address them as part of comprehensive tax reform!). But if it means there won't be a review of the extenders or consideration of offsetting revenues or spending cuts, then that's a problem. Given the nation's current fiscal state, adding to the national debt and kicking the can down the road with no plan ahead is simply unacceptable. Lawmakers must review the provisions in the "extenders" package and, more importantly, pay for them.

A review has already begun on a Ways and Means Subcommittee (we detailed one of the hearings here), but it needs to be done on a broader basis in both Houses. Surely, lawmakers can find some policies that are not worth extending instead of falling back on the horsetrading that created this package of tax breaks in the first place. In order to avoid the "herd-like" process in which all the extenders are extended in a single package with no oversight, former acting CBO director Donald Marron recently suggested breaking the provisions up into categories for review.

The Five Largest Tax Extenders (billions)
Policy2012-2013 Cost2012-2022 Cost
Subpart F Exemption for Active Financing Income$7$82
R&E Tax Credit$6$70
Alcohol Fuel Tax Credit$10$62
Depreciation of Leasehold and Restaurant Equipment$1$26
Education Expenses Deduction$2$18
   
Memorandum: Total Tax Extenders (Excluding Expensing Provisions)$40$456

Source: Joint Committee on Taxation

The extenders shouldn't get a free pass. They should be scrutinized and then enacted only if they are worth the cost. And if they are worth the cost, they are worth paying for--after all, budgeting is supposed to be about tradeoffs.