by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Both Congress and President Obama say they support tax reform in theory. But tax reform should not inflict another tax hike on Americans, especially in a period of continued economic weakness.
Unfortunately, it might be impossible under the present legal circumstances to do the one without the other. This is why House Ways and Means Committee Chairman Dave Camp, who retires in January, is making a final push during the lame duck Congress to transform some of the 55 temporary tax breaks into permanent law. His laudable aim is to set them up so they can be sorted out as part of a broader reform process when his successor takes over the committee.
Lame duck policy changes should always be viewed with suspicion. But Camp, a Michigan Republican who has advocated tax reform his entire career, is not actually trying to change policy. What he wants is a law that acknowledges policies already in force, which Congress predictably renews and presidents of both parties have predictably supported.
The reason Camp wants to do this is quite complicated, illustrating the backwardness of how Washington works. The short version goes like this: As long as these essentially permanent measures are “temporary” on paper, the government does not take them into account when calculating future revenue. The resulting overestimate of revenue means that these existing provisions cannot be traded out for equal reductions in tax rates without making it look on paper like the government is losing future revenue — to the tune of 0.3 percent of annual GDP, or something close to $50 billion per year.
Yes, this is a soporific, in-the-weeds issue involving budget scoring. But unfortunately, this weird technicality is part of what’s holding up bipartisan tax reform. As absurd as it may seem, a law is needed to get around an accounting convention.
Further complicating the issue is the fact that many of the “tax-extender” provisions are repugnant carve-outs — including special breaks for the rum, alternative fuel blending, and horse and automobile racing industries. Even the provisions that seem more worthy on the merits (“enhanced deductions” for food donations by small businesses, for example) only serve to make the tax code more confusing.
Conservatives may be loath to see such special-interest provisions enshrined in permanent law. But because of the strange way Washington works, they are actually more likely to survive tax reform if they remain sidecars to the tax code, because then they cannot be easily traded out for lower, simpler tax rates that do less to distort or dampen economic activity.