In today’s Wall Street Journal, the estimable Chris Chocola, former congressman from Indiana and current president of the Club for Growth, writes that Congress should allow all of the so-called tax extenders to expire.
The tax extenders are a collection of roughly 50 tax-reducing policies that regularly expire and, just as regularly, Congress has continued. They expired at the beginning of this year, and Congress has yet to extend them.
Chocola is right that Congress should allow most of the extender policies to lapse. Many Congress designed to artificially tilt the energy market in the direction of certain renewable sources or reward certain taxpayers for behaving how the government would like them to. Others represent good policy but are narrowly tailored so only certain industries can benefit, which is unfair.
However, Chocola errs in two regards. There are some redeemable policies in the extenders group, such as expensing for small businesses, bonus depreciation for all businesses, and the deferral of businesses’ foreign active financing income. Congress should extend these policies.
Furthermore, allowing tax-reducing policies to expire, even if they are unsound, is a tax hike. Hiking taxes is a bad policy, especially when there is plenty of revenue coming into D.C., as there is today.
Chocola is right that Members of Congress who want to pursue better policy usually have few good options when it comes to the extenders. They are usually given an up-or-down vote on the entire package, which means they vote to either extend many bad policies or raise taxes.
But there is a way to handle the extenders that allows Congress to face a better choice. As we have advocated before and repeated recently, Congress should go through all the policies in the extenders package individually and decide which reflect good policy and which don’t.
It should undoubtedly scrap those that don’t, as Chocola suggests. But instead of allowing the resultant tax hike, it should make pro-growth changes to the tax code to offset the higher revenues.
Some possibilities include expanding expensing for small businesses, exempting taxpayers from paying interest on all or some of their savings, making it easier for all families to save more, or lowering marginal tax rates.
Congress could certainly come up with more. Given the current inequality debate, it might want to expand the Earned Income Tax Credit. No matter what they come up with, following this process would end up with a better result than raising taxes by allowing all the extenders to expire.