• The tax compromise between President Obama and Congressional Republicans has attracted specific criticism today.  Namely, some have called the “business extenders” things like “earmarks,” “pork,” “bailouts,” etc.
  • Business extenders are various deductions and credits which have been in the tax code for many years.  There is nothing special or different about them.  They are deductions and credits in the same way the student loan interest deduction is.  The only difference is that Congress puts an expiration date on these deductions and credits so that a “must-pass” legislative tax vehicle is manufactured every year or two.
  • Business extenders are far from ideal tax policy, as are permanent deductions and credits such as the student loan interest deduction, the state and local tax deduction, and many others.  On the merits, they should not exist in a broad-base, low-rate tax code. 
  • However, American employers face the highest corporate income tax rate in the developed world (40 percent with states).  These business deductions and credits are what make this confiscatory tax rate tolerable.  Getting rid of them is a good idea, but only in the context of fundamental tax reform that is revenue-neutral and lowers marginal tax rates.
  • Tax extenders are not earmarks, etc.  The invectives applied to them are more properly applied to spending programs.  Only spending programs can be pork, earmarks, or bailouts.  Letting people (or, in this case, employers) merely keep their own money is not “spending money on them.”  In order to think that it is, you have to assume the government has a right to all their money in the first place, and by letting companies keep some of it, they are getting money spent on them.  That’s absurd, and hardly correct tax policy from a conservative perspective.
  • The extenders in question total $55 billion in tax relief out of a total of
    $801 billion in tax relief.  As a percentage of the entire package (7 percent) the amount of attention they have received has been disproportionate.
     Congress has approved preventing these tax hikes from happening dozens of times over the past decade.  They simply are not new or controversial.
  • The whole point of this tax deal is to prevent taxes from going up on anybody.  It would be wrong to leave American employers with a tax increase at a time of nearly 10 percent unemployment.  Congress should avert this tax hike on employers.

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