December 09, 2009

Study in House "Extenders" Bill Would Provide Valuable Info on Many Tax Breaks

Earlier today, the House of Representatives passed its most recent version of the "Tax Extenders" package (H.R. 4213). The "tax extenders" consist of about 50 temporary tax provisions that, as their name suggests, need to be extended every 1-2 years to prevent their expiration. While multiple theories exist as to why these provisions aren't simply made permanent, it is clear that relatively little thought has been given to their effectiveness in promoting the multitude of goals for which they've been supposedly been enacted. The House bill seeks to remedy this problem by requiring that the Joint Committee on Taxation (JCT) conduct studies of each of these provisions using 10 different criteria explained in the bill's language. Addressing each of these 10 criteria would provide valuable insights into these provisions' worth. The full list is quoted below, though items #3, 4, 7, and 10 are of particular note:

(1) An explanation of the tax expenditure and any relevant economic, social, or other context under which it was first enacted.

(2) A description of the intended purpose of the tax expenditure.

(3) An analysis of the overall success of the tax expenditure in achieving such purpose, and evidence supporting such analysis.

(4) An analysis of the extent to which further extending the tax expenditure, or making it permanent, would contribute to achieving such purpose.

(5) A description of the direct and indirect beneficiaries of the tax expenditure, including identifying any unintended beneficiaries.

(6) An analysis of whether the tax expenditure is the most cost-effective method for achieving the purpose for which it was intended, and a description of any more cost-effective methods through which such purpose could be accomplished.

(7) A description of any unintended effects of the tax expenditure that are useful in understanding the tax expenditure’s overall value.

(8) An analysis of how the tax expenditure could be modified to better achieve its original purpose.

(9) A brief description of any interactions (actual or potential) with other tax expenditures or direct spending programs in the same or related budget function worthy of further study.

(10) A description of any unavailable information the staff of the Joint Committee on Taxation may need to complete a more thorough examination and analysis of the tax expenditure, and what must be done to make such information available.

The importance of Criteria #3, 4, and 7 should be obvious -- they attempt to directly address the core issue of these provision's value. But criteria #10 is also of great importance. If the JCT is unable to conduct a thorough study because of a lack of available data, how could lawmakers be expected to meaningfully evaluate these provisions' worth? If the mandate for this study is included in the final "Extenders" bill, any recommendations provided under criteria #10 should be taken very seriously.

Ultimately, the inclusion of this study in the final "Tax Extenders" package would help to pave the way for eliminating any "extenders" that are failing to live up to their original billing. This result should be especially welcome in 2010, when Congress is expected to consider tax reform more broadly in the context of the expiration of the Bush Tax Cuts. For this reason, the Senate should be sure to include this study in their version of the Extenders bill as well.

Finally, as somewhat of an aside, the criteria laid out in this proposed study may also be of use in contemplating a more fundamental overhaul of our government's "performance evaluation" infrastructure, as was proposed in a CTJ report just a few weeks ago.

For more on the Tax Extenders package in general, check out this coverage in CTJ's Tax Justice Digest.


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