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Payroll Tax Cut Extension: Just Another Quick Fix

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Policymakers of both parties may be hailing the recent bipartisan extension of the current payroll tax cut, but it's really just one more example of the short-term tax fixes to which lawmakers have grown addicted -- and that are making our tax code an increasingly undecipherable patchwork of temporary provisions.

House Republicans reached the compromise by dropping their demand for spending cuts that would offset the estimated $1 billion cost of the tax measure. Economists estimate that the average American family would have seen a tax increase of more than $1,000 per year if the temporary payroll tax cut had not been extended.

The payroll tax cut effectively reduces the amount that the majority of Americans pay into Social Security on their first $110,100 in wages. And while most everyone can agree on the short-term wisdom of not increasing the tax burden on Americans struggling in this difficult economy, by underfunding social security, we are stealing from Peter to pay Paul.

Consider this: According to the bipartisan Joint Committee on Taxation, 67 tax provisions will expire at the end of this year alone. They include a deduction for elementary and secondary school teacher expenses, a deduction for qualified tuition expenses, the Work Opportunity Credit and more. And then there's the Alternative Minimum Tax, which lawmakers "patch" every year to prevent it from causing a huge tax increase on the middle class. The latest patch has already expired for this year. Even this current payroll tax extension is a fix for a temporary, two-month extension passed in December.

Short-term "fixes" for these expiring tax provisions have consumed Congress and the White House, and have led to dysfunction, gridlock, partisanship and an inability to focus on bigger policy issues.

Filling the tax code with temporary measures has also led to widespread economic uncertainty and volatility that leaves taxpayers in the dark about where to invest their hard-earned dollars for the long-term or how to run their businesses.

Politicians are counting on the fact that the American public wants instant gratification and is more concerned about today than the potential long-term solvency of Social Security or the bill we are leaving our children and grandchildren to pay.

And then, of course, there is the issue of our ever-growing debt, which, despite lip service from both parties seems to be an issue that neither Congress nor the White House can summon the political will to address.

As we head down the final stretch of a presidential election year, one thing remains clear. Tax reform is not in the foreseeable future when all parties involved have ceded tax policy for tax politics. That is why we will continue to have a tax code that is unfair, un-simple, economically inefficient and mostly temporary.

Oh, and by the way, Congress, the Bush tax cuts are set to expire at the end of this year. Better get to work on another quick fix.

Christopher Bergin is President and Publisher of Tax Analysts and an expert on federal tax policy. He has written extensively on federal tax issues, worked in tax publishing for almost 30 years, and is frequently cited in national media as an authority on federal tax policy. He also blogs for Tax.com. This article is reprinted from the February 27, 2012 edition of The Hill.

Around the Web

Obama signs payroll tax agreement into law - CNN

Congress approves payroll tax cut extension – USATODAY.com

Obama Signs Payroll Tax Cut Extension Into Law