THE ANNUAL congressional scramble over a “tax extenders” bill has long epitomized what’s wrong with Washington. Fortunately, both Democrats and Republicans seem intent on ending this maddening ritual. Unfortunately, what they’re thinking about doing would make matters worse.
Most years around this time, Congress takes up the renewal of a grab bag of “temporary” special tax breaks for special interests, hence the term “extenders.” This of course spurs frenetic lobbying. Things have gotten so dysfunctional that last year lawmakers couldn’t complete even the usual sorry exercise; Congress thus faces the challenge of not only extending more than 50 provisions by the end of 2015 but also making them retroactive, so as not to impose financial chaos on millions of households and businesses.
A bipartisan agreement reportedly taking shape on Capitol Hill would make permanent certain provisions — such as the research and development tax credit for business and Obama-era expansions to the earned-income tax credit for the working poor — that deserve to be fixtures of the tax code on their merits, and already were, for all intents and purposes. Making their de facto permanence de jure would, to be sure, increase the future deficit. But this revenue loss on paper reflects artificial “scoring” rules, not fiscal reality. You could argue this aspect of the emerging deal helps ensure a future tax reform effort proceeds from more honest budget assumptions.
One problem, though, is that lawmakers might make some tax breaks more generous while they acknowledge their permanence. If the deal includes the plus-size research and development credit that passed the Republican-controlled House, for example, the national debt will grow $70 billion more (over 10 years) than it would if the deal simply made the current version of the credit permanent, according to the Committee for a Responsible Federal Budget.
Fiscal responsibility would require paying for any bill that comes out — if not all of it, then at least the costs of such expansions. At the moment, however, not even that minimal level of responsibility is on the table.
To the contrary — and this is the second major problem — the bill also may gut two Obamacare revenue sources: excise taxes on medical devices and on high-cost employer-paid health insurance. Both of these measures help fund insurance for lower-income people; the latter, by shifting incentives, tamps down medical costs. It’s especially galling that this budget-busting assault on President Obama’s signature domestic policy enjoys the support of many Democrats. They are responding to home-state device-makers protecting their profits and labor unions protecting their expensive health plans.
Mr. Obama needs to take a hard line against this potential disaster. He has resisted, so far, any delay or repeal of the health-care excise taxes. But some lawmakers are trying to sway him by offering additional funding for the “risk corridors” that subsidize insurers’ unexpectedly high costs of participating in Obamacare. No such palliative would justify the long-term damage to Obamacare’s funding base and to its cost-curbing purposes — much less the additional debt. Better to accept another short-term “extender” bill, as in the past, than to so thoroughly imperil the future.
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