Tax Analysts Blog

Lessig Is Probably Wrong About Extenders

Posted on Aug 17, 2015

Money plays a big role in politics. And politics, of course, plays a big role in the formulation of tax policy and what ends up in legislation. House, Senate, and particularly presidential candidates need an ever-growing amount of cash and donations to wage successful campaigns. And those resources are coming from smaller and smaller slivers of the population. But does this quest for campaign financing really explain why Congress can't ever seem to make progress on permanent tax extenders?

Harvard professor Lawrence Lessig thinks so. And he might run for president to prove it. Lessig argues that politicians basically sell year-to-year extensions of tax policy to donors. He thinks that lawmakers and lobbyists exist in a symbiotic relationship designed to shake down rich individuals and companies. Basically, Lessig is saying that each year Congress pretends it might not renew extenders in order to build support, and he believes support is just a euphemism for cash. His position is laid out in his book, Republic, Lost: How Money Corrupts Congress and a Plan to Stop It.

That's a very cynical view of Congress. And it fits with the fact that lawmakers spend a ton of time whipping up "support." Lobbyists need something to sell to their clients, and having to push for an extenders bill every year is a gift that keeps on giving. Could Lessig's dreary view of Washington really be the reason that permanent extensions of the research credit never seem to go anywhere?

Probably not. Lessig's arguments about the role of money in politics are obviously much broader than his smaller point about extenders, but he should look elsewhere for a better example. A quick perusal of the history of extenders reveals that budgetary gimmicks and deficits are more responsible for the yearly extenders dance than institutional corruption. Permanently extending the research credit would cost $180 billion over 10 years. The House passed a bill earlier this year that would have extended three other popular extenders at a cost of $127 billion over 10 years. That's a lot of money for a Congress that needs to rely on wild international tax reform schemes just to fund highways.

And whenever permanent extensions are proposed, it isn't lobbyists and campaign finance directors who are outraged or railing against it -- it's deficit hawks and some Democrats. The Center on Budget and Policy Priorities blasted the House's efforts to permanently extend the research credit in May. The White House has steadfastly pledged to veto any unpaid-for permanent extenders packages-- this despite the fact that the annual extenders bill is almost never offset.

Maybe some would argue that all this is part of a grand conspiracy. The president, left-leaning think tanks, and Republicans conspire to create a debate over extenders that lets the GOP and its allies (many Democrats do in fact support permanent credits for research, state and local sales taxes, depreciation, and other items) constantly churn money from donors. But that doesn't seem very plausible.

The reality is that Republicans would pass permanent extenders tomorrow if they controlled the White House and had enough votes in the Senate. And most Democrats would probably support a permanent extenders package that contained acceptable offsets. It's the parties' concerns over seeming weak on the deficit, not their desire to sell the same tax favors over and over again, that likely explains why extenders are an annual problem that never seems to go away.

Read Comments (2)

amtbuffAug 17, 2015

Exactly. Each party would prefer permanence, but not in the way the other party
would prefer. So they can only agree to kick the can, each party hoping to have
more political strength next time.

edmund dantesAug 17, 2015

Lessig is on to something, but it does not prove what he thinks it proves.

Instead of the R&D credit, look at the history of the AMT. For years there was
no inflation adjustment for the exemption amount, so every year more and more
middle income taxpayers were being threatened by the AMT. Every year there was
great handwringing over the need to "patch" in an inflation adjustment. Every
year the Democrats used the need for the patch as a convenient excuse for
another tax increase on "the rich," a tax increase that couldn't be justified
except as an "offset" for the much-needed AMT patch. And every year Democrats
resisted a permanent solution, because "the cost would be astronomical."

In truth, they loved having the patch expire every year because every year they
had the perfect excuse to raise taxes on someone else again. There were no
lobbyists for the middle class, those who would be ensnared by the AMT were
voiceless in the political process. That's why Lessig's conclusion is inapt.

The charade finally ended in 2012, when Republicans made inflation indexing of
the AMT part of the price Democrats had to pay for eliminating the "Bush tax
cuts" on the highest income taxpayers.

The lesson that Lessig should draw is that Democrats only care about balancing
the budget when it gives them an opportunity to raise taxes. Having temporary
tax provisions--whether aimed at corporations or individuals--gives them an
annual excuse to do so.

Temporary tax provisions of any kind are fundamentally corrupt, and ought to be
unconstitutional.

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