I wasn’t going to write about Congress’ latest effort to continue scores of soon-to-expire special interest tax breaks. But there is something about the joint Ways & Means/ Senate Finance Committee bill’s Orwellian title: “The American Jobs and Closing Tax Loopholes Act" (AJACTLA) that makes it impossible to ignore.
It isn’t just the fingernails-on-the-blackboard grammar that drives me crazy. It’s the idea that a bill that would do so little to create jobs or close loopholes—and would in reality continue so many special interest tax breaks—would be so hideously mislabeled. The bill would extend, count ‘em, 70 expiring subsidies at a cost of $28.5 billion over the next two years. There is little or no evidence that any of these goodies have ever created jobs, and thus it is unreasonable to believe they will produce any in the future—or that their long-postponed deaths would cost jobs.
To be sure, the bill includes many other proposals, including yet another delay in a scheduled Medicare payment cut for doctors and another $24 billion in extra federal Medicaid assistance to states. But to keep it simple, let's focus on the expiring tax breaks.
It is, for instance, hard to see how continuing to allow generous tax depreciation for NASCAR racetracks will create many jobs. It is easier, however, to imagine how this will continue a windfall for the track owners. It is similarly hard to see how the national economy benefits from special tax-exempt bonds for investments in New York City’s “liberty zone.” Good for developers and contractors doing work in lower Manhattan, as well as investment bankers and bond lawyers. Not so good for developers trying to build projects just outside the specially-designated zone.
A word about the cost of all this: The Joint Committee on Taxation estimates that extending the expiring provisions would reduce federal revenues by $32.5 billion over 10 years. But keep in mind these tax subsidies would all expire—on paper at least—over just a year or two. A more accurate 10-year estimate of the revenue loss (assuming the tax breaks eventually are continued throughout the decade) would likely approach $200 billion.
Lawmakers get some credit for at least nodding to the idea of having to pay for extending these tax breaks. This is a change, especially for the Finance Committee that until now has rejected even this modest bit of fiscal responsibility out of hand. Most of the revenue-raising proposals fall into three categories: Investment fund managers would have to pay tax at ordinary income rates, rather than capital gains rates, for income they receive as carried interest; self-employed people would no longer be able to avoid Social Security and Medicare taxes by routing income through S corporations; and U.S. corporations would lose some tax breaks on income they earn overseas.
But while nearly all of the cost of extending the 70 expiring provisions occurs in 2010 and 2011, 90 percent of the revenue to pay for these goodies would not be collected until 2012 and beyond. It isn’t hard to imagine that much of this money will never materialize, either because the law will be changed or because very smart lawyers will figure ways around it. The overall bill, including the new spending, would add about $140 billion to the deficit.
It is hard to be too cynical about tax extenders that have reached a state of near-immortality. But the least Congress could do is to call this annual rite what it is: Continuing tax loopholes, not closing them.
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