Tuesday, December 15, 2009

What I Read Today (more) - Tuesday, December 15, 2009

It’s Cold. It’s Icy. It’s Tax Extender Time

by Howard Gleckman

One cheer for the House. In what’s become a dreary annual dance, it agreed to extend, for yet another year, 48 special interest tax breaks worth $23 billion in 2010-2011. Why the cheer? At least it is proposing to—sort of-- pay for them.

One of these days, the Senate will stick these extenders on a bill of its own—probably on a budget resolution needed to keep the government going. And, as it does each winter, the upper chamber will strip out all of the revenue-raising measures. This will be especially ironic this year, since the Senate has spent months arguing with itself over the cost of its health bill.

When it comes to paying for insurance subsidies for low- and moderate-income people, lawmakers are quite insistent on not increasing the deficit. But when it comes to faster investment write-offs for movies, Nascar tracks, and restaurants, not so much. I'm waiting to hear the first tearful speech about the debt we are passing on to our children.

How ingrained have these “temporary” goodies become? Well, the Ways & Means Committee summary description now refers to them as “traditional tax extenders.” You know, here in America we love our traditions: fireworks on the Fourth of July, Thanksgiving turkey, Christmas sales beginning on the day after Halloween, and now, December tax extenders. I can’t wait for the Hallmark Sunday movie. A five-hankie film for sure (and eligible for special expensing at that).

Last year, former Joint Committee chief of staff George Yin and I got into a debate on TaxVox about the benefits of extenders. George argued that treating these tax provisions like appropriations and requiring Congress to review them every year or two is better than making them permanent. In theory, he is exactly right. But in practice, these goodies are extended mindlessly, and in a way that masks their long-term costs. For instance, the price of this bill is often described as $31 billion over 10 years. But if these subsidies are extended for a full 10 years (as they probably will be), the real cost would easily exceed $100 billion.

The extenders are also, not incidently, the gift that keeps on giving for lawmakers seeking campaign contributions and the tax lobbyists who dispense them.

This crop is a mess of tax breaks that never provided any economic benefit or might have once served some purpose but no longer do. Others appear to flatly conflict with one another.

Thus we extend the research and experimentation tax credit at a cost of $4 billion over 2 years although there is little or no evidence that it results in greater innovation (except, perhaps, among the tax lawyers). Then, there are the multiple credits for development in empowerment zones, renewal communities, and new markets. Evidence here is pretty clear: Developers move their projects to the tax-subsidized side of the street but net investment doesn’t increase at all. Besides, know anybody in the commercial real estate business looking for tax credits these days?

Finally, there are my favorites—the contradictory energy breaks. The bill tries to encourage the use of alternative fuels by extending a subsidy for hybrid trucks at the same time it attempts to keep the cost of fossil fuels low by continuing breaks for marginal oil wells. This, I guess, is symbolic of the entire exercise. It only makes sense if you are in Congress.

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