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LAME EXTENDERS

November 15, 2006

As I expected, Congress is moving to renew the "expired provisions" that were caught up in this summer's battle over estate tax repeal. The provisions include the R&D credit, deductions for college tuition, the deduction for state and local sales taxes, and deductions for teacher expenses. Congress passes them for a year or two at a time to keep their true cost from showing up in budget computations. The San Jose Mercury News reports:

Lawmakers are working to get it done, most likely once Congress reconvenes after Thanksgiving. Senate Finance Committee Chairman Charles Grassley, R-Iowa, and top Democrat Max Baucus, D-Mont., met Monday evening with House Ways and Means Committee Chairman Bill Thomas, R-Calif., to discuss strategy on passing a package of tax breaks including the R&D credit...

Grassley and Baucus issued statements Tuesday pledging action on the R&D credit.

"We need to give taxpayers the same certainty about tax provisions that affect their bottom line," Grassley said. "I hope the House and Senate use the lame duck session to redeem themselves from lameness and pass a solid extenders package including the R&D tax credit."

I don't doubt that the extenders will pass. I do wish the lawmakers would stop first and read this piece at the Tax Policy Blog on the unwisdom of the provisions they are rushing to extend:

The primary problem is that tax credits erode the tax base. As the tax base shrinks, lawmakers will attempt to make up the lost revenue by increasing tax rates--leading to higher rates for everyone. Some Democratic leaders, poised to take over Congress next year, have already begun to suggest that raising tax rates will be necessary to pay for “middle-class tax cuts.” But Tax Foundation studies have shown that tax rates are already twice as high as they otherwise would be if the tax base were not worn down with tax credits:

Indeed. Unfortunately, the few who benefit a lot have more friends in Congress than the multitude that gets fleeced a little at a time.

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