Senate struggles to extend tax cuts. Why? It's too costly.

The Senate wants to continue expiring tax cuts – the so-called 'extenders' bill. But it's struggling to make up the lost revenue.

Jim Young/Reuters/File
The Capitol Building in Washington is pictured in this 2008 file photo. Senate wants to extend expiring tax cuts but is struggling to find the revenue to offset the costs.

The Senate is having a lot of trouble trimming the cost of a bill intended to continue expiring tax cuts–the so-called “extenders” bill. Trouble is, they’re not willing to actually trim the actual “extenders.”

In fact, the “extenders” are such legislatively-sacred cows that they are used as a vehicle for other policies that are (oddly) not considered as sacred–like extension of unemployment benefits or even extension of the so-called “doc fix.”

What the Senate is tinkering with right now are these hitch-a-ride attachments to the extenders bill and the various revenue offsets designed especially to help pay for the extenders. (Note that unemployment benefits would qualify as “emergency spending” and hence are allowed to increase the deficit, and the “doc fix” is explicitly exempted from deficit-neutral/”PAYGO” requirements under the now-statutory PAYGO law.)

So the House and Senate have both complained that extending the extenders is “too expensive.” But both the House and the Senate have yet to contemplate this: if we’re not willing to put up with the offsets required to pay for these tax extenders, then maybe this tells us these tax extenders are not worth their cost!

My boss Bob Bixby remarked on this oddity this week on Concord’s Tabulation blog (emphasis added):

Beyond economic efficiency and political cover there are more fundamental questions. Do the extenders really accomplish their goals and are those goals worth the cost? No one really knows because no one ever asks.

The only question that comes up with regard to the extenders is how they can be offset to comply with the pay-as-you-go law. That’s an important consideration — it is certainly better to have paid for waste than unpaid for waste — but it ignores the question of whether the extenders are wasteful to begin with.

As Congress is forced to dig deeper into its bag of tricks to pay for the extenders, this exercise is prompting even some in the business community to ask whether the extenders are really worth the trouble. For example, the current bills use almost $60 billion of permanent tax increases to cover just a one-year extension of the extenders. It will require even deeper offsets in the years ahead.

Before going through this painful exercise, it would be best to look more closely at the extenders. While most of them have a laudable purpose, such as encouraging investments in new technologies or in economically distressed areas, Congress has not taken the time to examine whether they have been successful enough to justify raising taxes elsewhere or cutting other spending programs.

I think we’re now seeing some “revealed preference” in Congress on this issue. Perhaps these tax extenders aren’t all “good enough” to justify the offsets Congress clearly isn’t willing to make.

The trouble is, not being willing to pay for things hasn’t stopped Congress from continuing to spend on them, and like other “entitlements” that seem impossible to “trim” once we’ve been promised them, these “tax expenditures” are just like a whole bunch of mini entitlement programs that grow monstrous and uncontrollable over time. (Like the monstrous hair extensions from the horror movie, Exte, shown above… in case you were wondering. Talk about “unruly” hair…)

[UPDATE 10:30 pm: By the way, we re-live this "trouble with tax extenders" every year, and nothing ever changes--as my post from two years ago indicates. If you've never read my story of the House Ways and Means member who years ago very plainly explained to me why these extenders must continually be extended (instead of being made permanent or allowed to expire), check it out.]

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