We are now into a new year, and Congress has plenty of unfinished business to attend to, including extending a slew of important tax breaks that expired at the end of the year.
There are 55 of them, tax breaks that both individuals and businesses depend on. If, for some reason, Congress fails to approve them retroactively, many taxpayers will have their tax returns turned upside down. Until Congress acts, as it has done in the past, all they have is uncertainty.
Among the breaks are billions of dollars in tax credits for companies that invest in research and development. There are generous exemptions for financial institutions doing business overseas, and several breaks that allow businesses to write off capital investments faster.
While some are obscure, such as tax breaks for the makers of electric motorcycles, another one helps teachers who purchase classroom supplies with their own money. Other breaks benefit college students and commuters who use public transportation.
So, why do we have to go through this charade every year or two? Why can’t a dysfunctional Congress prove all the naysayers wrong and at least pass, on time, a bunch of tax breaks that most members of Congress agree on?
One reason is that reducing tax revenue adds to the deficit, a no-no in Washington these days. Approving them a year at a time adds about $40 billion to the deficit. Making them permanent would require estimating the impact on the budget over the next decade, making the number $400 billion. Annual approvals will end up costing the same dollars over a decade, but the appearance of holding down the deficit is what counts these days.
At the same time, though, annual approvals give members of Congress an opportunity to hear from lobbyists defending their particular breaks, and sweep up some more campaign cash.
Rep. John Lewis of Georgia, a senior Democrat on the tax-writing House Ways and Means Committee, put it best when he said, “It’s not fair. It’s very hard, it’s very difficult for a business person, a company, to plan, not just for the short term but to do long-term planning.” He added, “It’s shameful.”
It will be interesting to see how the tax breaks fare in the debate to overhaul the entire tax code. Ways and Means Committee Chairman Dave Camp, R-Mich., and Senate Finance Committee Chairman Max Baucus, D-Mont., are working to simplify the tax code by reducing tax breaks and using the additional revenue to lower overall tax rates.
Until that reform comes about, Congress needs to end the end-of-year cliffhanger being played out each year at the expense of individuals and businesses.