Committee for a Responsible Federal Budget

Club for Growth: Quit Renewing the 'Temporary' Tax Breaks

Apr 16, 2014 | Taxes

In the Wall Street Journal today, Chris Chocola of the right-leaning Club for Growth called for Congress not to renew the expired "tax extenders." Earlier this month, the Senate Finance Committee advanced legislation to reinstate more than 50 of these provisions, at a cost of $85 billion. As we explained recently, continuing this practice permanently would cost over $1 trillion and wipe out all the revenue gains from the fiscal cliff tax increases.

And not only are these tax breaks expensive, but many would not pass a cost-benefit analysis if appropriately scrutinized. Chocola writes (emphasis added):

A $250-a-year subsidy for those who commute to work using New York's "bike share" program. Breaks for Broadway plays like "Of Mice and Men" starring James Franco and Chris O'Dowd, up to $15 million per production. A $71 million benefit for NASCAR facilities. Billions in credits for the wind-energy industry.

All that and more, coming soon to a taxpayer near you. It's once again time for the annual special-interest orgy known as the "tax extender" legislation, a giveaway bill that Congress plans to take up in the coming weeks.Since the 1980s, when Washington last enacted comprehensive tax reform, Congress has passed extensions of ostensibly "temporary" tax breaks for interest groups. The package is referred to as "tax extenders" because the breaks are almost always extended by Congress without much opposition. The 2014 installment could cost $85 billion in the next two years, and legislators are piling on their pet projects since it's considered "must pass" legislation.

This is all a mistake. Congress needs to clean up the tax code and lower marginal rates across the board, but tax-extender legislation delays any serious reform. Congress should let the extenders expire permanently

Whereas we tend to make the fiscal case for not extending these provisions without offsets, Chocola makes an economic case for allowing them to expire:

Allowing these credits to expire would do little if any harm to the overall economy. Specific industries that have too long considered the government a good customer would have to adjust. But the positive effects of ending capital misallocation would outweigh the temporary downsides. First Trust Advisors LP Chief Economist Brian Wesbury told me that 'moving away from a lobbyist-oriented mentality of annual gifts to special interests will actually improve medium- to long-term economic prospects.'

Eliminating the extenders would increase government revenues, but that's not the reason for ending them. Pro-growth tax reform would likely also bolster government revenues—but would do so in a way that would benefit the economy. Getting rid of tax extenders might even motivate affected industries to lobby for real tax reform that would lower individual and corporate rates.

In the op-ed, Chocola suggested that the Club for Growth would likely put a vote to continue the extenders on their scorecard meaning Members would get a negative mark for such a vote. But they are not the only group to expires concern over the extenders package currently under consideration. Wayne Brough of the right-leaning FreedomWorks has argued that extenders are a distraction from the real issue of tax reform. Meanwhile on the left, Citizens for Tax Justice and the Center on Budget and Policy Priorities have both urged Congress not to renew the expired tax provisions without offsetting their cost (and let expire provisions that are not worthy of extension). We share this view, as does the Concord Coalition and the Bipartisan Policy Center.

PAYGO rules not only help to keep the debt in check but force policymakers to face real trade-offs to determine what is valuable and what is not.