Why Congress is broken: tax extenders edition

By Lee Drutman.

Drutman is a senior fellow in the political reform program at New America and the author of the forthcoming book, The Business of America is Lobbying

Once again, Congress will be renewing the tax “extenders.” As always, a last minute deal is miraculously appearing. The special interests that benefit from an array of breaks can, once again, breathe a sigh of relief. As they do every two years about this time.

The “extenders” are a package of 50 or so special interest tax breaks (55 this year, at an estimated cost of $45 billion over 10 years) that go through the same strange ritual over and over again. First, Congress dithers and explores the ever-elusive goal of comprehensive tax reform. Companies that benefit from the loopholes promptly panic and they hire lots of lobbyists. Then, just as the session is about to end, Congress renews the tax breaks. But just for a year or two. So we can do it again at the end of the next Congress.

Tax experts generally think some breaks that have been perpetually extended should be made permanent (the ones that make decent policy sense, like the R&D tax credit, or the child tax credit) but most should just allowed to lapse (like the giveaways for NASCAR tracks or racehorse owners which are harder to justify).

But it’s not likely any will be made permanent any time soon. And it’s not likely that any will lapse either. Instead, we’ll just keep doing this again and again, every two years. Here’s why:

By my count, there were 183 different lobbying firms and 222 different lobbying clients who mentioned either “tax extenders” generally or the R&D tax credit (which is the biggest credit) specifically in their 2014 lobbying filings.

This is almost certainly an undercount since these disclosures only go through the first half of 2014 and disclosures rely on voluntary reporting. In terms of dollars, the lobbying disclosures reports mentioning tax extenders or the R&D tax credit through the first half of 2014 cover $208 million worth of lobbying contracts.

What better way to keep a bunch of big donors coming to your fundraisers than by keeping the fate of their favorite tax breaks up in the air until the very last minute? Once Congress agrees to a deal, individual members lose the ability to tell companies and donors: “we’re not sure what’s going with those tax extenders this time around, and hey, by the way, we’d love to see you at the next fundraising breakfast.” And nobody in Congress wants that to happen.

As a bit of basic math, a tax break extended permanently will cost the government a lot more than a tax break that is extended for only two years. Since Congress always loves to pretend to be fiscally responsible, it looks a lot better to score the tax extenders at a mere $45 billion, as opposed to the hundreds of billions that their long-term extension or permanence would cost. It’s the same brilliant logic that a payday lender once gave me. He said: APR is meaningless, since the term of our loans is a single week.

In other words, it seems pretty unlikely that the two-year tax extender charade will ever go away. Lobbyists love them as they are, and politicians love them as they are. For them, the accounting works perfectly.