November 29, 2014

‘Tax Extenders’ and Hidden Revenue Losses

  • The nation's fiscal future depends on the balance between the spending in the federal budget and the revenues flowing into the treasury. Tax policy...

One big reason why pundits and policymakers should exercise caution about declaring “mission accomplished” based on near-term deficit projections by the Congressional Budget Office: When projecting future taxation and spending levels, the CBO is legally required to assume that current laws will remain in effect -- even if Congress is widely expected to change some of them.

This allows lawmakers to use several gimmicks to hide the true cost of the policies they support. So-called “tax extenders” are one of the many ways Congress toys with the budget math. These are tax expenditures with set expiration dates that Congress nonetheless renews year after year.

For example, tax credits for renewable energy and for research and experimentation are among those that are technically supposed to expire at the end of this year but that Congress is very likely to extend, as it has done in the past.

It is unrealistic to assume that politicians will let the vast majority of tax extenders like these expire on schedule in the next couple years. CBO estimates that extending them would add $938 billion to deficits over the next decade.

Washington must enact tax and spending reforms that would eventually set the debt on a downward path as a percentage of GDP. Hiding tax expenditure revenue losses behind false promises to phase them out won’t get the job done.