Permanent fix needed for tax code


Just in time for tax day, the Congressional Budget Office delivered a pleasant surprise. Based on current law, the national debt will grow by $286 billion less during the next decade than the CBO projected only two months ago. The main reason is a downward adjustment in the nonpartisan agency’s forecast of subsidy costs for health insurance purchased on the Affordable Care Act’s exchanges.

To be sure, federal debt held by the public would reach 78 percent of gross domestic product by 2024 and is rising — a fact the CBO says is fraught with “serious negative consequences.” And the budget office’s findings come with yet another asterisk: It does not account for dozens of temporary tax breaks that expired at the end of 2013, but some or all of which Congress is likely to re-enact as it has in the past. As the CBO report notes, if Congress does indeed adopt a so-called “tax extender” bill “without making offsetting changes in other tax policies, revenues would be lower than those in the baseline,” and the deficit correspondingly larger.

Congress and the country shouldn’t be in this predicament to begin with. The tax breaks in question include some that were temporary for a plausible reason — provisions designed to provide short-term economic stimulus during the recession, for example. There are some that have been renewed so many times that lawmakers may as well make them permanent so that businesses can plan. The research and development tax credit comes to mind. Dozens of others, though, are little more than special-interest subsidies for businesses from wind energy to auto racing.

This melange of the good, the bad and the ugly regularly made it into law, unpaid-for, as an undifferentiated attachment to the “must-pass” annual “fix” to an alternative minimum tax that would otherwise clobber the middle class. But the AMT has been fixed permanently, so that excuse is gone.

Alas, the outlook for a more discriminating, fully paid-for approach to tax extenders is murky. The Senate Finance Committee passed a bill this month that would reenact, without offsetting tax increases or spending cuts, more than 50 breaks through 2015, at a 10-year cost of $85 billion. This would wipe out nearly a third of the savings in the new CBO deficit estimate. Meanwhile, in the House Ways and Means Committee, Chairman Dave Camp, R-Mich., is pushing a bill that would make seven provisions permanent — including, wisely, the research credit and, inexplicably, accelerated depreciation for race horses. Camp hasn’t said how he would pay for this, except to imply that offsets will come from tax reform, including expiration of other tax extenders.

On that general point, Camp, who is retiring, agrees with Senate Finance Chairman Ron Wyden, D-Ore., who has sworn this tax extender bill will be the last of his chairmanship, which may or may not extend beyond the 2014 elections. Realistically, tax reform isn’t happening this year, and a final extenders bill won’t come before November. But Congress must at least be clear about this: Any real solution will make sound policy permanent, discard special-interest fluff, end log-rolling and uncertainty and fully offset the budgetary costs.