Rather than taking on the hard work of genuine tax reform, Congress plans to continue its sloppy approach to the issue by extending roughly 50 temporary tax breaks for another year. That sets up another crisis next year.
It also means individuals and businesses can't keep accurate budgets because they don't know if their tax breaks will survive the next hostage-taking episode in Washington. The wind energy business, for example, is slumping because a key tax credit expired last year.
Some of the breaks at issue are highly controversial, such as those catering to NASCAR track developers and racehorse owners. Others enjoy broad support, including the deductions for home mortgages, children, and college tuition, as well as the earned-income tax credit for the working poor.
Very few members of Congress want to go home and brag about cutting these deductions, yet they keep them in a kind of limbo by not making them permanent. That makes them bargaining chips in seemingly endless negotiations over tax law.
The relatively few deductions and credits that serve legitimate policy purposes should be made long-term, eliminating the annual opportunities for political drama. Using tax deductions and credits as policy tools can work, but the current system is more likely to reward whoever has the best lobbyist. Much of the tax code merely serves the special interests that can afford to pay professionals to get it salted with breaks. As a result, the code is largely inscrutable to Americans who aren't accountants, lawyers, or lobbyists.
Congress should subject every tax break to scrutiny and consider what it's meant to encourage or discourage. Given the environmental and foreign-policy pitfalls of relying on fossil fuels, for example, a case can be made for credits that stimulate the growth of alternative energy resources. But should we really continue to offer breaks for Puerto Rican rum and heavy-truck tires? The possibility of eliminating needless breaks and making commensurate reductions in tax rates should have bipartisan appeal.
In contrast, a deal crafted by Senate Democrats and House Republicans last month would have made the NASCAR and horse breeder deductions permanent. Worse, the deal's breaks would have cost as much as $500 billion over the next decade, with no revenue increases to offset them. President Obama rightly threatened a veto.
Instead of handing out breaks for rum, Congress should make a sober attempt at tax reform that meets the country's fiscal needs, protects credits and deductions that serve important policy goals, and gets rid of costly sops to special interests.