Ways and Means chair’s call to action on taxes

Rep. Kevin Brady’s (R-Texas) tenure at the helm of the House Committee on Ways and Means got off to a promising start when the new chairman called for permanently extending many of the 52 federal tax provisions that expired at the end of last year. As Brady puts it, this call to action is part of his plan to “tee up pro-growth tax reform.”

{mosads}In the short run, Brady argues that permanent extension of these temporary tax breaks — including the research and development (R&D) tax credit, deductions for teachers’ out-of-pocket expenses, and the deduction for state and local sales taxes — will create “certainty for the economy” and “a better bang for the buck.” It’s hard to argue otherwise.

Brady also calls it a matter of “honest scorekeeping.” He’s right. The R&D credit has, for example, been extended 16 times since its creation in 1981. An honest accounting would scrap the legal fiction that a 34-year-old tax provision is temporary.

Indeed, as Sen. John Thune (R-S.D.) pointed out earlier this year, “We should acknowledge that many of the temporary provisions that we’re extending today have been around for a decade or more, and are in fact temporary in name only.”

Congressional leaders were on the verge of publicly announcing a permanent extenders deal last year when President Obama scuttled it by threatening a veto. Congress ultimately passed a one-year retroactive extension and resolved to find a way forward in 2015.

Senate Finance Committee Chairman Orrin Hatch (R-Utah) has long wanted to advance legislation to make many of the temporary tax provisions permanent. With that goal, Hatch jump-started the Senate process earlier this year with a markup in committee. The early start held out promise that this year would be different.

Sen. Ron Wyden (D-Ore.), the Finance Committee’s ranking Democrat, shared in that promise, quipping that “I continue to believe it is not in America’s interest to pass tax bills with a shelf life shorter than a carton of eggs.”

Congress spends an inordinate amount of time every year fiddling at the margins of tax policy. As the federal government is projected to collect more than $41.6 trillion in revenue over the coming decade, permanently extending all of these tax provisions would trim that figure by 2.1 percent.

But by continually quibbling over expiring tax provisions, Congress has lost sight of the bigger picture.

Our goal as a nation should not be to extend expiring tax provisions, but to reform the dysfunctional federal tax code — to, as former Treasury Secretary William Simon once put it, create “a tax system which looks like someone designed it on purpose.”

Brady’s best argument for tax extender permanency is that doing so would smooth the way for broader tax reform.

Why? The congressional budget baseline reflects the revenue anticipated over the coming decade — not under current policy, but under current law. With the expiration of these tax provisions, the baseline anticipates more tax revenue than would occur had those provisions not been slated to expire.

If these tax provisions are allowed to remain expired or are extended for only a year or two, the baseline will assume upward of $900 billion more revenue. This will make tax reform more difficult and, therefore, less likely.

The solution for resetting the baseline is to seek permanent extensions for all of the expired tax provisions in anticipation of the next Congress negotiating comprehensive tax reform with Obama’s successor.

Brady is wisely employing a strategy of “temporary permanence.”

Temporary permanence recognizes that some of these expired tax provisions — that many agree are parochial — may be made permanent only to be eliminated in the pursuit of tax reform as Congress curtails credits and deductions to lower tax rates and fix the county’s tax treatment of depreciation and international income.

“Temporary permanence,” according to Scott Hodge of the nonpartisan Tax Foundation, “is a form of budgetary gymnastics to get around quirky budget rules that make no sense to average Americans, but it would go a long way toward making the broader goal of fundamental tax reform possible.”

Kevin Brady’s call to action gives his congressional colleagues a clear and compelling case for adopting permanent tax extenders. But will they listen?

Davis is a former member of the House Ways and Means Committee. Carter was a deputy assistant secretary of the Treasury under President George W. Bush and served on the staff of the Senate Budget Committee.