The plan has a host of provisions that will give influence-peddlers plenty of opportunities to cash in.
President Donald Trump walks with two Republican senators. Photo by Aaron P. Bernstein/Bloomberg via Getty
In September 1986, Howard Gleckman was a Businessweek reporter covering the bipartisan tax package that would go on to be signed by Ronald Reagan the following month. After a late night of reporting on House and Senate tax writers’ final touches to the bill, Gleckman ran into a lobbyist he knew sitting in the House Ways and Means Committee hearing room. The lobbyist looked depressed, and Gleckman asked whether he’d lost a fight over language in the bill. No, he’d gotten everything he wanted: Three of his client’s amendments had made it into the final version. That was bad news because now that those were permanent provisions of the code, the client wouldn’t need him.
The 2017 Republican House and Senate tax plans—currently being negotiated into a single package via reconciliation between the two chambers—are not 1986 reform. Likely no corporate lobbyist will be crying in a committee room if and when Donald Trump signs a finished bill. In part, that’s because both plans stuff new temporary business tax cuts into the code. For years to come, K Streeters will be selling their influence to get key politicians to renew them every few years.
These temporary provisions—known as “tax extenders”—include an expiration date. In theory, short-lived cuts could be sound fiscal policy, a way to address a sudden economic downturn or provide disaster relief, as Rutgers economist Rosanne Altshuler told the Senate Finance Committee in 2012. And if they were studied before renewal to make sure continuing them made sense, they’d work as intended, Gleckman, now a senior fellow at the Urban-Brookings Tax Policy Center, told me.
But in today’s America, sound fiscal policy at the federal level rarely seems to be on the table. Instead, all policies are tilted toward short-term political gain, and anything in government not nailed down can be pilfered for campaign cash. So here’s the two-step process by which they actually work:
1. Tax cutters insert extenders into the code to understate the impact of their plans on the federal debt
Republicans want to pass a tax plan without Democratic votes. To do that they have to comply with their own budget resolution under the Senate’s Byrd rule, which doesn’t allow them to blow a hole in the national debt that exceeds $1.5 trillion during the ten years after the measure becomes law.
To stay under $1.5 trillion, they’ve inserted a raft of extenders into the House and Senate bills, including a dozen that benefit businesses. For example, the Senate bill cuts in half the tax on the first 60,000 barrels of beer made by craft breweries, but only through 2019. The House extends a break for a StarKist tuna cannery in American Samoa that ends in 2022. That same year, the House also theoretically stops allowing businesses to write off the full amount of many capital costs in year one instead of on a normal depreciation schedule. The Senate bill ends the 23 percent deduction for pass-through income in 2025. And so forth.
In reality, none of those “kill-by” deadlines likely means anything. “When it comes up to the expiration dates, those industries aren’t going to suddenly go, ‘Oh that’s OK, you can have the money back,’” Ryan Alexander, president of budget watchdog Taxpayers for Common Sense, told me. “They’re going to fight to keep those cuts.”
So take the House bill’s proposal to let businesses deduct the full amount of capital costs in year one. Congress’s own Joint Committee on Taxation shows that measure will increase the national debt by a total of $84 billion for the five years it’s supposed to stay alive. But because on paper it ends in 2022 and revenues start coming in as businesses revert to normal accounting, its total deficit impact over ten years miraculously drops to $25 billion. “It’s all about gaming the budget,” said Gleckman.
2. Congress members renew extenders every few years in exchange for campaign cash from companies that benefit
Get ready for even more exchanges of private money for government favors. Take an episode in December 2011 documented by conservative author Peter Schweizer in his book Extortion using data from MapLight, which tracks money in politics. Temporary tax breaks targeting some fossil fuel and natural gas producers were set to expire at the end of that year. If they lapsed, the companies stood to lose a total of $3.5 billion. The Senate Finance Committee scheduled a hearing for December 14 that would help decide the fate of the cuts. That month the Finance Committee chair, Democrat Max Baucus, collected checks from dozens of energy companies totaling $46,100—unusual since Baucus didn’t sit on the Senate Committee on Energy and Natural Resources.
The next April, Republican House Ways and Means chair Dave Camp scheduled another hearing to review which tax extenders should be kept. In the run-up to it, he collected 120 checks totaling more than $230,000 from corporate or trade association PACs that had a financial stake in whether their cuts would continue. Another $16,000 came in from General Electric, which also would lose if a key extender were killed, notes Schweizer.
All of that means each of the 12 extenders that could end up in a Republican law is a potential source of campaign revenue for legislators. “Congress shouldn’t be picking winners and losers in general, but certainly not based on their ability to hire good lobbyists or be great campaign contributors,” said Alexander.
In theory, Republicans hate this kind of rent-seeking complicity gumming up the tax code and making it hard for businesses to figure out what they’ll pay year to year. In 2012, Utah senator Orrin Hatch called the growing number of extenders “a very notable and problematic trend.” In 2015, House Ways and Means Chair Kevin Brady argued that making tax decisions permanent provided for “honest scorekeeping” on the budget. In 2015, Americans for Tax Reform’s Alexander Hendrie wrote that Congress uses the practice of extenders to “distort the revenue baseline and hide the true cost of extenders when measuring their ten year effect.” That “wreaks havoc on the ability of businesses to plan ahead and on tax preparation,” he said. Former Oklahoma senator Tom Coburn told Politico in 2014 that “the well-heeled and the well-connected are the ones that get the tax extenders.”
All of that high principle is so much exhaust dissipating in the rearview for purposes of the 2017 Republican tax bills. Brady, Hatch, and Americans for Tax Reform all champion the Republican plans.
Asked why Brady supports tax plans that create new extenders, Ways and Means spokesperson Shane McDonald sent an emailed statement: “The Chairman’s goal in tax reform has always been to deliver as much permanence as possible because lasting economic growth depends on providing businesses and families with certainty to plan for the future, save, and make long-term investments. Chairman Brady will continue to push for the permanence that Americans deserve as he works to finalize tax reform with the Senate over the coming weeks and as he leads the Ways and Means Committee in the years ahead.” Hatch’s office and ATR didn’t respond.
Schweizer calls the regular cycle of extender renewal a “mob tax.” Progressive author and Harvard law professor Lawrence Lessig has called it “one of the most efficient machines for printing money for politicians that Washington has ever created.” Or perhaps it’s more like climate change: Ever-more torrential storms worsen seasonal floods and lift all boats in a swamp.
Steven Yoder writes about criminal justice and domestic policy issues. His work has appeared in Salon, Al Jazeera America, the American Prospect, and elsewhere. Follow him on Twitter.