The Senate will soon vote on the infamous $85 billion “tax extenders” bill (the EXPIRE Act), the 15th such renewal of a host of expiring “temporary” tax provisions. Tax economists generally agree that temporary tax policies are ineffective for economic growth, so why will these tax breaks likely be renewed yet again?

The regular renewal of tax breaks is a vehicle for politicians to acquire financial and political support from special interests in exchange for tax handouts. In the 1990s, federal tax policy was relatively stable, with relatively few expiring tax provisions. But today’s large number of temporary tax provisions signals to those who benefit from the provisions that Washington is open for business.

[See a collection of political cartoons on the economy.]

Mercatus Center research finds that a higher number of temporary tax breaks means more spending and investment in lobbying activities. Rather than emphasizing productive jobs, a growing supply of lobbying jobs emerges to protect various industries’ tax privileges. The Senate Finance Committee Chairman Ron Wyden, D-Oregon, has noted that the tax extenders’ “stop and go nature obviously contributes to the lack of certainty and predictability needs to create more family wage jobs.”

Yet the tax code is not getting better; in fact, it appears to be getting incrementally worse. The markup of this year’s tax extenders bill shows why. The price tag of the tax extenders bill started at $67 billion. But following speeches about the importance of “compromise,” committee members agreed to various amendments that added another $18 billion to the price tag, driving the cost of renewing the tax breaks up to $85 billion.

Even if these specialized tax breaks were permanent, Mercatus congressional testimony highlights that the primary beneficiaries of them are small concentrated interests and lobbyists, not the economy at large. According to the Joint Committee on Taxation, the EXPIRE Act renews or extends 54 different tax provisions ranging from tax credits for railroad maintenance to tax deductions for filming TV shows. Despite the political rhetoric, handouts to special interests occur at the expense of reducing tax rates for most Americans.

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It’s not as though there’s been a shortage of conversations emphasizing fundamental tax reform that would result in rate reduction and a simpler tax code. Ways and Means Committee Chairman Dave Camp, R-Mich., released a detailed tax reform plan in February, and President Obama has repeatedly said he wants to simplify the tax code and make it more efficient. But more accolades seem to be given for talking about reform instead of acting, because neither Congress nor the White House have made a serious push to eliminate specialized tax breaks. Only 20 percent of business tax professionals think Camp’s plan will receive a committee markup, so it appears that tax code instability is here for the foreseeable future.

Predictable and simple tax policy is essential to long-term economic growth. The current tax code may cost up to $1 trillion each year as a result of economic loss from taxation, high accounting costs and lobbying expenses. These costs should be reduced by having a tax code that reduces the need for accountants and lobbyists. Lower marginal tax rates for every business reduces the benefit of special interest tax breaks, which are more valuable the higher the marginal rate.

Instead of discussing tax extenders again, serious tax reformers should look to reduce marginal rates and stop picking winners and losers. Congress should decrease the number of special interest tax breaks and make permanent those that actually benefit economic growth. A more stable and simple tax code contributes to a better economy and ultimately leads to job creation, which benefits all Americans.



