Doing nothing’s a good thing

Marketplace Staff Dec 8, 2006

KAI RYSSDAL: The clock’s ticking on the 109th Congress. Lawmakers are trying to wrap things up by a midnight deadline. Even at this late hour they’ve got a legislative plate piled high. Extending tax breaks, normalizing trade relations with Vietnam, and providing health benefits for miners, not to mention a funding bill for almost everything else the government does. Commentator Len Burman says he’d just as soon they don’t get all their work done.

LEN BURMAN: The conventional wisdom is that if this do-nothing failure of a Congress doesn’t extend tax breaks for education, corporate R&D and other things, that’s a bad thing.

But I think it’s great!

You see, extending temporary tax measures has become so routine that it’s passing for real action and hiding deep problems. Congress keeps kicking the can down the road instead of making permanent and sensible changes to tax policy. And taxpayers are getting duped.

Take the business R&D credit. If Congress extends it two years, it looks like a bargan at $16 billion.

But the credit gets reinstated automatically every time it comes up for renewal. Its full cost over the next 10 years is closer to $100 billion.

Making these tax breaks temporary also makes them less effective. The research credit, first enacted in the 1980s, is designed to spur innovation in American companies. Every few years it expires — like it did last year. That’s a problem. Companies often have to plan research projects years in advance.

So, do they count on the research credit, even though it’s technically scheduled to expire before they actually perform the research?

The risk that the credit might die diminishes its value as a spur to innovation. So, companies aren’t doing as much fresh R&D as they might. And taxpayers aren’t getting the bang per buck that they should from the tax credit.

And there’s evidence that education tax breaks get built right into the cost of tuition. A better way to give students tax breaks would be to put the money into Pell Grants or more student loans.

Lawmakers say that they believe in honest budgeting. A good place to start is to look at expiring provisions, make the good ones permanent and let the ones that aren’t worth the cost expire — permanently.

RYSSDAL: Len Burman is co-director of the Urban-Brookings Tax Policy Center.

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