April 28, 2014

Business As Usual

Jason J. Fichtner

Former Senior Research Fellow

Jacob Feldman

Summary

Mercatus Center research finds that a higher number of temporary tax breaks means more spending and investment in lobbying activities. Rather than emphasizing productive jobs, a growing supply of lobbying jobs emerges to protect various industries’ tax privileges. The Senate Finance Committee Chairman Ron Wyden, D-Oregon, has noted that the tax extenders’ “stop and go nature obviously contributes to the lack of certainty and predictability needs to create more family wage jobs.”

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The Senate will soon vote on the infamous $85 billion “tax extenders” bill (the EXPIRE Act), the 15th such renewal of a host of expiring “temporary” tax provisions. Tax economists generally agree that temporary tax policies are ineffective for economic growth, so why will these tax breaks likely be renewed yet again?

The regular renewal of tax breaks is a vehicle for politicians to acquire financial and political support from special interests in exchange for tax handouts. In the 1990s, federal tax policy was relatively stable, with relatively few expiring tax provisions. But today’s large number of temporary tax provisions signals to those who benefit from the provisions that Washington is open for business.

Mercatus Center research finds that a higher number of temporary tax breaks means more spending and investment in lobbying activities. Rather than emphasizing productive jobs, a growing supply of lobbying jobs emerges to protect various industries’ tax privileges. The Senate Finance Committee Chairman Ron Wyden, D-Oregon, has noted that the tax extenders’ “stop and go nature obviously contributes to the lack of certainty and predictability needs to create more family wage jobs.”

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