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Weekly Wastebasket: SHIP OF FOOLS

Ship of Fools

Volume XIX No. 13: March 28, 2014

It’s not even April Fool’s day yet and Congress is already pulling a fast one on taxpayers. A fast two, in fact. C94153ac86958f57a367da39741ee598

First, Congress is intent on taking up the tax extenders package, a bill filled with tax break zombies that seem to live past their annual or biennial expiration – it seems for perpetuity. Ranging from boons for NASCAR track owners, to credit for giving away spoiled food, to helping line the pockets of major rum producers – many of these provisions are questionable. This hodge-podge of breaks and carveouts often hitches on as a caboose to whatever legislation seems to be moving through the Capitol. At least in this Congress, there seems to be precious few legislative trains leaving the station, so they are moving forward in the open.

Senator Ron Wyden (D-OR) said the tax extenders were a priority of his soon after ascending to the Finance Committee Chairmanship last month. That’s not that surprising since he has been a vocal advocate for one provision in particular that would benefit manufacturers in his state. He was even successful in getting a modified version of the provision – the tax credit for electric motorcycles– reinstated in the package last Congress after it was deleted by his predecessor, Sen. Max Baucus (D-MT).

To his credit, the ranking Republican on the Senate Finance Committee Sen. Orrin Hatch (R-UT) has said that he believes there is a lot of fat to cut in the package and that each provision should be scrutinized. And it appears that Chairman Wyden will hold votes on controversial items. So we expect to see some procedural improvements this time around. All that said, this whole exercise runs counter to the notion of comprehensive tax reform and the “blank slate” approach of eliminating all the breaks and only letting the most worthy back into the code.

Over in the House, Ways and Means Committee Chairman Dave Camp (R-MI) has indicated that he wants to approach each tax extender individually and decide which should be made part of the permanent baseline. That makes sense to us. Some of these provisions have been “extended” a year or two at-a-time for a couple decades. But on the other hand, Chairman Camp seems to be walking away from offsetting the revenue losses that will result from making these provisions permanent, something he planned to do in his previously released comprehensive tax reform package. We understand that functionally many of these provisions were part of permanent tax law by dint of their regular and sometimes retroactive extension, but this is not the time to explicitly reduce revenue and adopt them all either. If every provision was included, the Congressional Budget Office and the Joint Committee on Taxationestimates (Excel, Expiring Tax Provisions tab) the taxpayers will absorb $938 billion in lost revenue over ten years.

That brings us to the second April Fool’s trick. On Thursday, after House leadership from both parties agreed on the plan, the House stealthily adopted the “Medicare Doc Fix” on a voice vote with hardly any members in the chamber. This enabled the bill to move on without debate or even a vote so taxpayers knew where their elected officials stood on the bill.

The “Medicare Doc Fix” is a response to the sustainable growth rate (SGR) set on Medicare payments in the 1997 budget deal. Essentially SGR tied payment increases to inflation. The problem is medical costs have grown faster than inflation, triggering scheduled payment cuts. Well it would trigger this budget constraint if the SGR weren’t continuously “fixed.” Again, one to two years at a time. The previous “temporary” patch was to expire at the end of the month, cutting Medicare reimbursement payments 24 percent. The “Doc Fix” maintains payments at the current levels until March 31, 2015. What is needed is a long-term solution, but that would cost $180 billion and lawmakers can’t agree on how to offset the cost. Even the “offset” to this $21 billion package was full of gimmicks – just a bunch of small ball cuts plus some timing shifts that won’t save real money.

Playing tricks on taxpayers increases cynicism and deficits, reducing the (already low) standing of Congress and the nation’s coffers. What the nation needs is leadership and serious solutions. It’s past time to figure out long-term solutions to not just Medicare payments, but Medicare itself and for comprehensive tax reform.
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