Costly Tax Extenders Would Extend Taxpayer Confusion

Blog Post
Tuesday, February 05, 2019

As if filing federal tax returns weren’t already confusing enough, some lawmakers are considering retroactive changes in the tax code that would apply to 2018. This means some taxpayers may need to delay preparing and submitting their returns -- and perhaps will even be forced to file revised tax returns later.

A little common sense, please. Responsible elected officials should recognize the importance of having all of the tax laws in place for a given year before the start of the tax-filing period.

The changes under discussion include the possible renewal of “tax extenders,” which are short-term provisions that benefit certain individuals, businesses and industries. These provisions can involve everything from railroad track maintenance to racehorses and biofuels.

Rather than making them a permanent part of the tax code, however, Congress has renewed many extenders year after year so that they appear less expensive. Despite efforts by supporters last year to get them renewed for 2018, however, Congress did not do so.

The current timing problem aside, most of these provisions are dubious public policy. They are essentially government spending programs that operate through the tax code, where they often receive less scrutiny than outright spending does. According to an estimate by the Committee for a Responsible Federal Budget, renewing more than 20 tax extenders that expired in late 2017 would cost about $10 billion a year -- or $80 billion to make them permanent.

The Concord Coalition has long questioned the use of tax extenders, and expressed concern again late last year that they might be deficit-financed. Extenders have many other critics as well who say the provisions are costly, unfair and ineffective in achieving their stated goals.

The cost to the government of borrowing more money to retroactively extend certain tax breaks -- or even quickly adding new ones, as some on Capitol Hill are suggesting -- should give lawmakers pause.

In a reminder of the nation’s alarming fiscal situation, the Congressional Budget Office released projections last week showing that deficits would increase by $11.6 trillion over the next 10 years -- despite a strong economy.

As Rep. Bill Pascrell (D-N.J.), who serves on the House Ways and Means Committee, has suggested, the renewal of tax extenders should at least be subject to the pay-as-you-go principle that was recently embraced by the House. This would require somehow offsetting their costs elsewhere in the budget.

The stated justifications for these sorts of tax breaks are to provide incentives for individual and business activities that deserve governmental encouragement. Yet the approval of retroactive tax breaks for last year undermines that argument; whatever decisions they were supposed to incentivize in 2018 have already been made.

Robert Bellafiore of the Tax Foundation recently elaborated on the problems that renewing the provisions now would create for taxpayers, companies and the IRS, all of whom already face challenges because of big changes in the tax code that took effect in 2018:

Continuing these temporary provisions (extenders) has never been a good idea, but doing so in the middle of filing season could make matters worse. . . . The 2018 tax filing season is full of uncertainty, and changing the tax code part way through by passing an extenders package would only compound that uncertainty. Reauthorizing extenders now would require the Internal Revenue Service (IRS) to update and publish new tax forms, and taxpayers who have already filed would then need to go through the costly and confusing processing of amending their returns.

Meanwhile, lawmakers and President Trump continue to battle over spending decisions for Fiscal 2019, which is already more than four months old. Time for a spending agreement is again running short. This makes it even less likely that last-minute changes in the tax code will receive sufficient scrutiny.

In any case, Congress must soon turn its attention to working on the Fiscal 2020 budget. That should include a bipartisan commitment to move away from dubious short-term provisions that create greater uncertainty and filing difficulties for companies and individual taxpayers.

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