Tax Extenders

This past election offered a lot of lessons, but none more poignant than this: voters believe we have serious economic problems. Exit polls showed that 78% are worried about the economy, and 70% think the economy’s condition is either not so good or poor.

It’s no surprise that so many Americans feel this way, even though top-line economic numbers have improved. America is now a perpetually slow growth nation. From 1950 to 2000, America averaged 3.7% annual GDP growth. Since 2000, average growth is 1.8%—we’ve slowed by half. And during the last 14 years, median wages dropped 7%.

Clearly, economic growth must be our priority. There are many things Congress needs to do on that front, but there is one thing they can do right now: pass tax extenders.

Dozens of tax provisions expired at the end of 2013 and a handful are also slated to expire this year. Leaders on the right and left agree that the temporary, start-and-stop nature of tax extenders is a terrible way to do policy and run the government. It distracts policymakers from comprehensive tax reform, and the uncertainty and backward-looking nature of extenders undermines the incentive effects many tax provisions are supposed to provide. Take, for example, the Research & Experimentation credit which is intended to incentivize research investment businesses otherwise wouldn’t make. If businesses don’t know whether the credit will be available, they may not make that additional investment.

The best thing Congress can do is comprehensive tax reform that our economy so badly needs. But, in the meantime, Congress should pass a tax extenders package this year. Postponing the issue into the new year would cause collection and enforcement nightmare for the IRS, small businesses, and individuals as they begin to do their taxes. The Senate Finance Committee crafted a bipartisan package that would extend most provisions through 2015. The House has taken a different track and voted to permanently extend nine expiring provisions. And the President has called for several provisions to also be permanently extended in his budget.

Among all this, however, is a bipartisan path forward.

Congress can come together and advance a bill that takes a piece from all of these playbooks and does the following:

• Temporarily extend the majority of provisions as the Senate bill does. This would give individuals and businesses some certainty to invest and expand.
• Extend the R&D tax credit permanently as the House has called for. Research being done by U.S. companies not only creates jobs, but it also drives the technological innovations that drive our economic growth. The R&D credit is widely supported by economists as one of the most important tax expenditures in the code. If it were permanent, it could do its job far more effectively.
• Permanently extend the temporary portions of the Earned Income Tax Credit, which the President has previously proposed in his budget. The EITC is the most effectively anti-poverty program in the U.S. and helps tens of millions of individuals.

There are also a number of ways to do this in a fiscally sound way that Republicans and Democrats have supported in the past—such as removing less effective extender provisions and finding some commonsense offsets. Passing tax extenders would show bipartisan unity, promote economic growth, and signal the potential for compromise as we approach a new Congress. Most importantly, everyone would get a win—in a time when our economy and our faith in government desperately need a lift.