Taking the Political Easy Path – Extender Tax Provisions Update

TaxExtenderUpdate

In an earlier post, I discussed the on-going issue with Congress where they continue to extend 50+ key tax provisions (nick-named “extender tax provisions”) for only one or two years, and then the process must be repeated.

Why won’t Congress make the changes permanent? Because of politics.

Specifically, these changes reduce tax revenue and increase the deficit. Increasing the deficit is politically unpopular. Estimates to make the changes permanent go as high as $800 billion. A single year extension is estimated around $40 billion. If Congress continue to “extend” these provisions each year, the total accumulated cost will be the same, but the annual cost of each year’s legislation is low enough that it flies under the radar and generates less scrutiny.

The underlying issue is the growing deficit. It deficit is politically unpopular because not enough is being done to address it. Congress and the President need to get serious about the deficit and actually do something, but the deficit needs to be addressed separately from these extender tax provisions. If there was a plan to deal with the deficit, then appropriate tax legislation wouldn’t be a political problem.

Are these extender tax provisions appropriate tax policy for the long term? If they are, then Congress needs to make them permanent.

I’ve read several reports that over this last weekend, congressional leaders are discussing doing just this; making the extenders permanent. The cost makes it unpopular with many in Congress, and also with President Obama who would have to sign the legislation.

As in years past, we are awaiting in December to see what tax laws apply to this current year.

Kevin Brady of the House Ways and Means Committee supports making the extender tax provisions permanent, but understands the difficulty. He has already introduced a bill to extend these provisions for two years if the permanent solution can’t be reached.

I’m predicting Congress and the President will choose the easier political path. Look for these tax provisions to be extended for a year or two.

RICK

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