Tax Extenders Spread the Budget Thin
The Senate Finance Committee will hold a mark-up of the Family and Business Tax Cut Certainty Act tomorrow at 10 am. The Act would retroactively extend the Alternative Minimum Tax patch and many temporary "tax extenders" through 2012 and extend just the extenders through 2013. According to the release about the mark-up, the Committee intends to trim the number of provisions included in the extenders by one-quarter.
Our newest press release on the extenders says that the Finance Committee--and Congress in general--should subject the extenders to a rigorous review and pay for them. As CRFB president Maya MacGuineas said:
It's good to see members of Congress making decisions about which tax extenders are worth keeping -- a great improvement over the blanket extensions issued in the past...But we need to offset the cost of whatever extenders we do continue instead of charging them to the nation's credit card. How are we going to responsibly deal with the larger fiscal cliff if we can't find a way to pay for these smaller tax provisions?
The Joint Committee on Taxation score of the bill shows that these extensions will cost about $150 billion, with $90 billion coming from the AMT patch and $60 billion from the rest. As for their intent to scale back the extenders package, they have done that to some extent in this bill, most notably not extending the ethanol tax credit.
| Cost of Extenders Bill (billions) | |
| 2013-2022 Cost | |
| AMT Patch | $92 |
| State and Local Sales Tax Deduction | $4.4 |
| Education Expense Deduction | $4.2 |
| Other Individual Extenders | $4.9 |
| Subtotal, Individual Extenders | $105.5 |
| R&E Tax Credit | $14.3 |
| Subpart F Exception for Active Financing Income | $11.2 |
| New Markets Tax Credit | $1.8 |
| Depreciation for Restaurant and Leasehold Property | $3.7 |
| Depreciation for Motor Tracks | Not Extended |
| Work Opportunity Tax Credit | $1.9 |
| Energy Credits | $5.9 |
| Ethanol Credit | Not Extended |
| Wind Credit | Not Extended Currently |
| Other Business Extenders | $7.4 |
| Subtotal, Business Extenders | $46.2 |
| Total Cost | $151.7 |
Source: JCT
The Finance Committee deserves credit for trying to eliminate about one-quarter of the extender provisions; but importantly that does not translate into reducing the cost by a quarter. Based on CBO's list of expiring tax provisions, extending all extenders on a permanant basis would cost nearly $460 billion through 2022. Of that, the amount coming from provisions which are allowed to lapse by the legislation under consideration is somewhere between $65 and $80 billion (depending on whether there is intent to allow the wind energy production credit to expire). That means allowing 14 to 18 percent of the costs of the extenders to expire. The vast majority of that revenue -- nearly $60 billion -- comes from not extending the ethanol credit, whose elimination passed the Senate last year. Importantly, these estimates do not include the AMT patch, the two broad expensing provisions, or any of the 2001/2003/2010 tax cuts.
The Finance Committee's mark-up is a small step in the right direction, but we think that more rigorous review could produce more savings. Hopefully, the Committee will have a broader debate about the provisions included in this bill. More importantly, we hope that any extenders bill ends up paid for. As CRFB president Maya MacGuineas said:
Policymakers should replace the abrupt and mindless fiscal cliff with a thoughtful and gradual plan to put the debt on a clear downward path relative to the economy. If they aren't willing or ready to do that, the absolute least they can do is pay for whatever extensions they do pass. We simply can't afford to make things any worse.
