Solutions for Our Failing Tax Code

My AEI colleague Alex Brill testified before the House Committee on Ways and Means this morning on the need to evaluate the expiring tax provisions known as “tax extenders.” He did an excellent job calling attention to one of our nation’s rapidly growing problems. As Brill pointed out, and as you can see in the chart below, the use of tax extenders has grown,  so that in 2001, only 13 were set to expire in 2001 or 2002, but “a decade later, in 2011, 129 tax provisions were set to expire in 2011 or 2012.”

While these temporary provisions are usually created to ensure review of the tax code, they are often renewed without rigorous discussion, and as more are created, the number of expiring provisions grows. Brill correctly highlights four main reasons this creates a problem:

1. Tax extenders distort the fiscal budget baseline, thereby complicating revenue and deficit forecasts…

2. Tax extenders create financial reporting problems for publicly traded companies…

3. Tax extenders exacerbate the uncertainty facing businesses…

4. Tax extenders are intended to ensure oversight, but they are generally extended without much consideration.

As I’ve traveled around the country on the book tour, I’ve heard a number of these concerns echoed by businessmen, particularly surrounding uncertainty creation. It becomes harder and harder to make hiring and other long-term decisions when many budgetary questions remain unanswerable due to short-term provisions. And tax complexity is costly – in 2008, the cost of complying with the individual and corporate income taxes amounted to $163 billion.

Brill argues that each provision should be able to stand on its merit as a sound tax policy that would be effective if permanent. Each extender should then be evaluated and dealt with. These measures would indeed help eradicate the growing problem of extenders. And not a moment to soon, since as AEI’s Jim Pethokoukis points out, the coming tax increase due to expiring provisions is larger than any other previous tax increase, contributing to the coming fiscal cliff, which would have disastrous effects.

You can watch Brill’s full testimony here, and read about other solutions for our ailing tax code from “The Road to Freedom” here.

Arthur Brooks

One Comment

  1. anon

    Can you give an example of one of these “extenders?” Please explain what they are. Odd name.