In the past, Congress has demonstrated a habit of routinely extending specific, temporary tax cuts for one or two years at a time. The ideal tax policy would be eliminating all credits and lowering the rate in a net tax cut. In lieu of this, the next best thing is to preserve these “tax extenders” where possible. While they are targeted to specific groups of taxpayers, they protect against immediate tax increases on the American people and ensure a more accurate baseline that will result in lower rates when passing pro-growth reform.
Unless they are refundable, tax credits do not affect federal spending. They reduce the amount of tax paid to the government. Repealing them does not cost the American people any money, it means the government loses money. Extending them does not mean any other taxpayer is worse off, it means the government is stealing less money from someone. In no way are they corporate welfare.
Last year, Congress passed legislation that made many important, conservative tax provisions permanent like small-business expensing, research and development credits, and provisions to prevent double taxation on international income. Others were phased out over several years, which achieved the goal of creating a more accurate federal revenue baseline while also keeping tax cuts for individuals and businesses in place.
Ways and Means Chairman Kevin Brady (R-Texas) best explained the significance of the extenders package:
“This bill serves as a path forward to pro-growth tax reform by ensuring that we will no longer have to spend months each year debating temporary tax extensions. Instead, Congress can focus on delivering a simpler, fairer and flatter tax code that’s built for growth.”
Conservatives have taken another positive step forward this year by releasing their “Better Way” Tax reform blueprint which calls for across the board lower rates on individuals and businesses, taxes once – at the point of consumption, and limits the number of credits in order to make the code simpler and fairer. Lawmakers should keep to their original plans and use the remaining months to push momentum forward on pro-growth tax reform rather than revisiting legislation one year later.