Friday, October 15, 2010

Wise words to heed

In today's NYT:

University of Michigan Professor Joel Slemrod writes:

The truth is that the cost to us of government programs is not measured by tax collections, but instead is about equal to the expenditures themselves. Thus, for a given amount of government spending, cutting taxes does not lower the cost, it just postpones the assignment of who will bear the costs and weakens our long-term economic prospects. Not this year, but sometime very soon, we should decide as a country how generous our entitlement programs should be and who should bear their cost. Extending all the Bush tax cuts signals that we cannot bring ourselves to face up to this reality.

Donald Marron, director of the Urban-Brookings Tax Policy Center and a visiting professor at the Georgetown Public Policy Institute writes:

While politicians, analysts and the media endlessly debate how expiring tax cuts might affect taxpayers in 2011, the real disgrace is that we still don’t know what the tax law is in 2010.


Such retroactive policymaking is an embarrassment. In a well-functioning democracy, policymakers should establish the laws of the land in advance so that families and businesses can knowledgeably plan their activities. Surprises may sometimes necessitate mid-course corrections. An economic downturn may justify mid-year tax cuts, or a sudden crisis may require mid-year tax increases. But persistent retroactive lawmaking undermines the core idea that ours is a nation of law.

Needless uncertainty also creates real costs. Uncertainty about the R&E tax credit, for example, limits its usefulness as an incentive. If businesses think that it might expire, they have less reason to take it into account when planning their research efforts. That can turn a helpful incentive into a pointless giveaway.

Needless delay also undermines the IRS’s ability to implement the tax system. In 2007, for example, Congress fiddled until just before Christmas before deciding to enact that year’s AMT patch. Because of that delay, affected taxpayers couldn’t begin filing their returns until February 15, when IRS computers finally reflected the new law.

Congress has made a huge mistake by leaving taxpayers in limbo for more than 10 months. Let’s hope they resolve that quickly when they return for what promises to be a frantic lame-duck session.

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