WASHINGTON -- With the Senate expected to vote today on a proposal to phase out dividend taxation over four years and then "sunset" the provision so that dividends would suddenly be taxed again in 2007, The Concord Coalition said that the use of “sunsets” to artificially reduce the revenue loss estimates of tax cut proposals is an expensive and irresponsible gimmick that future generations will have to pay for.
“There is absolutely no economic or fiscal policy justification for the idea of phasing out and then reinstating the taxation of dividends. Any anticipated positive economic effects from eliminating the taxation of dividends will be muted, if not canceled out, by the looming sunset. On the other hand, if one assumes that the sunset doesn't happen then the cost of the provision balloons. In short, this idea is either bad economics or dishonest budgeting,” said Concord Coalition Executive director Robert Bixby.
“The obvious intent of such a blatant scoring gimmick is to pretend that a tax cut with an estimated revenue loss of about $400 billion over 10 years will only lose about one-third as much revenue. Using this device, proponents can take credit for eliminating the double taxation of dividends while technically, if disingenuously, staying within the $350 billion cap set in the budget resolution for the Senate's tax bill. Even some of the reported “offsets” in this amendment are nothing more than new sunsets for other tax cuts. Gimmicks are thus being used to offset gimmicks. It is a measure of how far fiscal discipline has slipped that the Senate would even consider such hocus-pocus in the wake of the Enron accounting scandal,” Bixby said.
“To be clear, the Senate is not alone in making use of the sunset gimmick. The House version of the reconciliation bill contains several new sunsets that artificially hold down its official cost. Moreover, any new sunset gimmicks enacted this year will add to the $1.2 trillion 10-year cost of permanently extending all the tax cut sunsets already enacted. These sunsets confuse the fiscal outlook and complicate the tax code. Worst of all, they cynically avoid facing up to the fiscal consequences of today's decisions, leaving future generations to clean up the mess,” Bixby said.