November 07, 2024
Editorial

TEMPORARY TAX DODGE

Congress has always had various ways of hiding the size of the deficit but none has worked so well recently as the temporary tax cut. As the House and Senate prepare to continue this deception, conscientious members should at least demand a second line of budget scoring that would assume whatever tax cuts are passed would become permanent.

Last year, a Brookings Institution report found that in the 1990s temporary tax cuts – which often become permanent – equaled about $22 billion over a typical 10-year budget. As of 2004, the temporary tax cuts over 10 years are worth $431 billion. Congress creates these cuts temporarily because they allow for reductions without the Congressional Budget Office including them in long term budget analyses, which otherwise would show much larger deficits. The shorter the time period before a tax cut’s supposed expiration date, the smaller the deficit spending seems.

Sen. Olympia Snowe the other day called this practice “a constant shell game.” As a Republican moderate on the Senate Finance Committee, she has been pushed to support even more unpaid-for tax cuts – for instance, those concerning capital gains and dividends – even when they are not due to expire for a couple of years. She has successfully resisted this, though the latest reconciliation bills could have $56 billion more in cuts, plus legislation to extend the break on the alternative minimum tax ($31 billion for a single year) plus further cuts to the estate tax later this winter.

No matter what the tax cut, once a temporary cut is in place, the failure to make it permanent is called a tax increase, and woe unto any senator who supports a tax increase. This is the situation now in Congress with several temporary tax cuts, which have costs further masked by a Bush administration switch from 10-year to five-year budgeting.

Whether you believe that taxes are cut too often or not enough, having Congress debate the costs with at least an official nod toward the fact that these cuts are likely to become permanent is a basic fiscal responsibility. It would tell the public more about the effect of budget decisions and, should pay-as-you-go provisions return, would make them more honest measures of what is or isn’t paid for.

House and Senate reconciliation bills soon will be worked out in conference and both chambers will pass more tax cuts as a result. Whatever figure is finally offered for the cuts, it will almost certainly not include all tax cuts and will extend cuts only temporarily in some areas. The result is a number that reflects no reality but that of Congress kidding itself that it is acting responsibly. It isn’t.


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