Tax Extenders: Take Them or Leave Them

November 25, 2014

The most immediate issue in U.S. Federal tax policy today is the issue of the “tax extenders:” orphaned, temporary tax provisions that get their name from the way they are “extended” by Congress on an ad-hoc basis.

They are likely to be used as bargaining chips against other temporary expansions of refundable tax credits that the Obama administration would like to keep. They are also subject to a variety of silly budgetary games, an annoying feature of policy debates that shows up in all sorts of weird places.

As actual tax policy, some of these provisions are excellent and others are terrible. Many other extenders are of debatable worth – not good enough to be made permanent, but not bad enough that they are allowed to die.

For example, consider the deduction for certain expenses for elementary and secondary school teachers, a modest little deduction found on the front half of the 1040.

While teachers buying school supplies out-of-pocket is undoubtedly a virtuous thing, a tax deduction is probably not the first-choice solution to the problem. (The first-choice solution should probably be for schools to give the teachers the necessary supplies in the first place.) This is a great example of the sort of arcane little policy that ends up becoming a tax extender. It’s debatable.

What is not debatable, though, is the idea of “extenders” in general. The central problem with extenders is their extender-ish-ness. If a teacher isn’t even sure whether the tax deduction will exist in the current year, because Congress hasn’t passed a bill yet, how is that teacher supposed to know whether or not to save his or her receipts on the qualified expenses?

Alternatively, on a much larger scale, businesses are already planning their expenditures and making expansion decisions for next year, and we still haven’t established our tax code for this year. This environment clouded with uncertainty helps no one.

Not all tax extenders must go, but the idea of tax extenders must go. All of them should be made permanent or allowed to expire. Doling out tax expenditures retroactively, year-to-year, on an ad-hoc basis, is a surefire way to employ a lot of lobbyists. Making Section 179 permanent, in contrast, might actually employ people in creating consumer goods and services.

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