Advancing a Free Society

Time to End “Temporary” Tax and Spending Policies

Monday, February 6, 2012

Today e21 published my piece calling for a comprehensive bipartisan effort to end various pseudo-temporary tax and spending policies.  See the complete piece here.

Excerpts

No matter who is elected president this November, he would do himself, both political parties and the nation an enormous service if he began his term with a successful bipartisan effort to end the multitude of “temporary” tax and spending policies under current law. Without such sweeping reform, we should expect an indefinite continuation of the economic policy paralysis that has so infuriated the public in recent years.

Under current law, various policies are scheduled either to change dramatically or to expire altogether within the next few years. The parties will often disagree on how exactly they should be extended going forward, while generally agreeing that the expiration threatened under law should not be allowed to occur. Both parties agree, for example, that tax rates should not rise for all income taxpayers at the end of 2012. Yet under current law, they would. Our “current law” forecasts, therefore, show a much smaller deficit than we will almost certainly have.

The situation has become so perverse that the Congressional Budget Office (CBO) now routinely publishes two alternative scenarios for the government’s fiscal outlook. One, the “extended baseline” scenario, reflects current law and shows relatively smaller deficits, but bears almost no relationship to what is likely to happen. The other projection -- the “alternative fiscal scenario” -- assumes that various current policies are not allowed to expire and shows disastrously high deficits. This latter scenario is closer to where we are actually headed, but puts scorekeepers in the awkward position of making predictions of how lawmakers will choose to override various current-law provisions.

The problems with employing “temporary” policies go beyond the understatement of likely deficits. They exert a crippling effect upon budget negotiations. Conservatives see the “current law” baseline rising in the future to unprecedented highs and refuse to raise it any higher. Progressives look at the “current policy” baseline, at the size of the constraints required to keep spending close to historical norms, and argue that revenues need to be raised.

The current list of such “temporary” policies is now practically endless; it includes current income tax rates, AMT thresholds, Medicare physician payments, payroll tax rates, unemployment insurance extensions, a host of spending reauthorizations, and various individual tax incentives known as the “tax extenders.”

Both sides would benefit enormously by starting fresh at the earliest possible time – by aligning “current law” and “current policy,” eliminating the need for dueling budget baselines, and looking realistically at our likely fiscal future. What is needed for this is to scrap a host of so-called temporary policies under current law and replace them with permanent ones. If the two sides could gloss over their long-term policy differences just long enough to agree to do away with the array of pseudo-temporary policies, both would benefit enormously.

Read more from Charles Blahous…

(photo credit: Steve Baker)