Businesses eyeing payroll tax cut extension

John Dimsdale Jan 16, 2012

Tess Vigeland:The House of Representatives is back to work tomorrow after a three week holiday break. The Senate’s not in session until next week. Nobody expects much lawmaking this year. Election politics will only add to the partisan gridlock in Washington. But one priority for some congressional leaders is to extend the payroll tax reduction now set to expire at the end of February. Since that is likely to be one of the few pieces of legislation to make it to the president’s desk this year, businesses are busy lobbying lawmakers to attach a whole lot of other tax breaks to it.

Marketplace’s John Dimsdale has the story.

John Dimsdale: At midnight on New Year’s Eve, a long list of federal tax reductions for businesses expired. They included breaks for investments in factory equipment and a tax credit for research and experimentation. It’s a total of 57 tax breaks in all.

Syracuse University professor Leonard Burman says they’re temporary because no one has successfully made the case for making them permanent.

Leonard Burman: A lot of them don’t really make sense as policy. But the practice has been in the past, every year or two years or whenever they come up, they just get extended because even though they’re kinda dumb, they represent unwarranted government interference in particular industries, they’ve got really strong constituencies behind them.

This year, those constituencies are trying to get the tax break extensions attached to the payroll tax reduction bill. But the breaks for businesses are getting extra scrutiny because each costs the government revenue. Burman says even those that do make it on board the only train leaving the station, likely won’t be signed until late February at the earliest. That delay, he says, makes many of them ineffective. Because businesses have to make investment decisions before then.

Burman: You’re not entirely sure you’re going to get the credit, which means you’re more likely to just do things you would have done anyway and then you get a giant tax credit on top of that. It’s wasting tax money and producing no effect on behavior.

Burman says short term business tax breaks should be limited to three times. Then Congress should be required to either make them permanent or drop them entirely.

In Washington, I’m John Dimsdale for Marketplace.

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