The Senate took up legislation on Tuesday to temporarily extend 50-plus business tax cuts without a spending offset. It’s smart policy, but Democrats are making poor arguments to support their position—and it may hurt them in the long run.
At the end of 2013, more than 50 tax breaks—known as the tax extenders—expired because Congress, which typically renews the extenders every year, chose not to. Last Friday, House Republicans passed a bill that made one such tax break for R&D permanent, legislation that would increase the deficit by $156 billion over the next 10 years. Democrats are looking to extend all but two of the tax extenders for two years, at a cost of $85 billion. The White House opposes both plans.
The House bill would increase the deficit, and yet, hypocritically, Republicans demand that a Senate bill to renew unemployment insurance include a full spending offset (it only includes a partial one right now). But Democratic arguments in support of these tax breaks aren’t much better. In fact, they sound a lot like Republican arguments.
Bad Argument #1
“I think again, it depends on the break. Some of these breaks are really important. For example, people getting a break for sending their kids to college if they’re in the middle class. This eventually means we get more money because kids get better jobs, so it depends on the breaks,” Senator Barbara Boxer said. “The answer is some should be paid for, and some pay for themselves.”
Republicans often argue that tax cuts do not reduce government revenues, because they unlock economic growth that in turn creates more revenue. The Bush tax cuts were sold under this guise. In 2012, the Congressional Budget Office reported that the Bush tax cuts reduced revenues by $1.2 trillion between 2001 and 2011. You can dream up theoretical circumstances where tax cuts will pay for themselves, but that almost never happens in practice.
Bad Argument #2
“When you are dealing with long-term current policy, there is no need to offset those types of costs,” Senator Benjamin Cardin argued. “To the extent that you change the policy absolutely it should be offset…[I]f it’s just extending current law, whether for two years or permanently, I don’t have a problem doing (that) without offsets.”
Republicans have made a similar argument in the past few days. It makes no sense. The tax extenders were never part of long-term policy. They expired every year. Policymakers may have assumed that they would always be extended, but that doesn’t mean you can ignore the costs. By this argument, any expiring program that policymakers intend to renew would not need a spending offset. (The Center for a Responsible Federal Budget has more on CBO’s scoring of these programs.)
A Better Argument
The real reason we should temporarily extend these tax breaks is that the short-term deficit doesn’t matter. In fact, it should be larger. These breaks will very mildly help the economy. Instead of giving out $85 billion in tax breaks, the government could have borrowed that amount and put it towards infrastructure spending, which may provide a slightly larger boost to the economy, but Republicans oppose that and every other deficit-increasing policy. The tax extenders are better than nothing. In addition, rising health-care costs and a lack of revenue are driving the U.S.’s long-term debt problem. These tax breaks will not lead to a debt apocalypse.
Why are Democrats making terrible arguments and avoiding a good one? Politics. The public still believes that the deficit is major problem—and expects their representatives to show similar deference to it. That prevents Boxer, Cardin and the rest of the Democratic caucus from arguing for deficit-financed infrastructure spending or business tax cuts. Instead, they're taking a page from the Republican playbook and using discredited arguments to support their position. That may lead to the right policy outcome right now, but it sets a bad standard in the end.