U.S. Budget Week: House Tax Extender Bill Undermines Deficit Rhetoric

Published May 9, 2014. By John Shaw . In Market News International (MNI).

WASHINGTON (MNI) - For years, Republicans have said their central fiscal goals are to reduce taxes, cut "wasteful Washington spending," and drive down budget deficits.

This week - and in coming weeks - House Republicans made good on one of these three goals: cutting taxes.

But they are declining to use these tax bills as vehicles to cut spending or tackle the budget deficit.

The House passed Friday a Republican-drafted bill that would permanently extend the research and development tax credit. The bill was passed in the House on a 274 to 131 vote.

The cost of this bill is $156 billion over a decade and it sailed through the House on the strength of Republican votes with some Democratic support.

Bill Frenzel, a former Republican congressman who is now a guest scholar at the Brookings Institution, said Friday's vote was a setback for fiscal discipline.

"This was a great opportunity for House Republicans to show they are serious about their stated fiscal goals: cutting spending, cutting taxes, cutting the deficit. Unfortunately, they decided to let this opportunity pass," Frenzel said.

"As a result, they've lost some credibility as deficit cutters. It makes their rhetoric ring a little hollow," Frenzel added.

The R&D tax credit is popular with lawmakers from both parties and is typically renewed by Congress for a year or two. It is one of the more than 50 temporary tax provisions that are called tax extenders.

According to the Committee for a Responsible Federal Government, renewing these tax extenders for two years cost about $85 billion, while the cost for extending them for a decade is more than $700 billion.

House Republicans have drafted legislation this spring that would make six of these tax extenders permanent. The total cost for these bills is $310 billion over a decade.

The Senate is expected to consider next week a separate two year tax extenders package that would cost about $85 billion. It is also unpaid for.

Senate Finance Committee Chairman Ron Wyden said last month as his panel considered the two year package that the "stop and go nature" of these tax extenders creates uncertainty for businesses and investors.

"I want to be straightforward on one point: this will be the last tax extenders bill the committee takes up as long as I'm chairman. That's why the bill is called the EXPIRE act. It is meant to expire," Wyden said.

Various budget watchdog groups have urged policymakers to include offsets for the tax extenders and then move to fully overhaul the tax code.

The Concord Coalition, in its weekly budget report, argues that periodic renewals of the tax extenders should be replaced with comprehensive tax reform.

It said that at a minimum, lawmakers should offset the cost of the extending these tax provisions.

"If Congress will not address the country's long-term budget challenges this year, it should at least not make the fiscal situation worse," the fiscal watchdog group writes in its budget report.

In a recent policy paper, the Committee for a Responsible Federal Budget made a similar argument.

"The best way to deal with tax extenders is in the context of a fiscally responsible comprehensive tax reform that broadens the tax base by scaling back tax breaks, lowers rates, promotes economic growth, and reduces the deficit," it said.

"In the meantime, the least we can do is stop making a bad situation even worse by adding to the debt with these costly extensions," it added.