Plans to Renew Tax Breaks Will Increase Deficits

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After a larger deal fell apart, the House recently voted 378-46 to approve a one-year extension of more than 50 lapsed tax breaks for businesses and other special interests — unfortunately, without paying for them.

The Joint Committee on Taxation estimates this will reduce government revenue by $42 billion over 10 years. The Senate is expected to pass the bill soon, and President Obama has indicated he will sign it.

Extending these “tax extenders” even for one year without offsetting the lost revenue increases the deficit and violates pay-as-you-go (PAYGO). But at least the current bill is smaller than an earlier plan to permanently extend a few tax provisions for businesses and renew the other tax breaks for two years, all without offsetting the lost revenue.

The Committee for a Responsible Federal Budget estimated that would have added more than $500 billion to the deficit over the next decade. But the White House threatened to veto that plan, partly out of deficit concerns but mainly because low-income tax credits were not extended.

Congress has repeatedly renewed tax extenders for one or two years, normally without offsetting their costs. This creates uncertainty for taxpayers, perpetuates inefficiencies in the tax code and adds to federal deficits. Lawmakers should instead deal with the extenders while overhauling the entire tax code.

External links:
Cost Estimate of H.R. 5771 (Joint Committee on Taxation)
Tax Extenders Go to Senate After House OKs Bill (MarketWatch)
Tax Extender Debate Is a Case Study in Fiscal Irresponsibility (Concord Coalition Blog Post)

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