Republic, Lost_ How Money Corrupts Congress--And a Plan to Stop It - Lawrence Lessig [93]
This, too, is something we’ve seen before. Yet it is just one-half of the two-part dance that, unless stopped, will drive our taxing system into bankruptcy.
The key to the dance is this: When you get a targeted tax benefit, you don’t get to keep it forever. Instead, because of the rules governing how our budget gets drafted (so-called “PAYGO rules”),27 each of these special benefits “sunsets” after a limited period. Because of these sunsets, each must be reconsidered every time a budget gets drafted.
Sunsets sound like a good idea. Indeed, some seem to treat them as a panacea for all the ills of a government. But when you begin to think more carefully about the obvious incentives, or political economy, that sunsetting creates, their virtue becomes a bit more ambiguous. For every time a “targeted tax benefit” is about to expire, those who receive this benefit have an extraordinarily strong incentive to fight to keep it. Indeed, we can say precisely how much they should be willing to pay to keep it. If the tax benefit is worth $10 million to the company, they should be willing to spend up to $10 million to keep it.
Professor Rebecca Kysar has framed the point most effectively in the context of “tax extenders”—the term used for temporary tax provisions. In a paper published in 2006 in the Georgia Law Review, she described the obvious (though apparently missed by those who created these sunsets) incentives a system of sunsets produces. As she wrote, “The continual termination of certain tax benefits and burdens creates occasions for politicians to more easily extract votes and campaign contributions from parties affected by the threatened provision.”28
They do this by “increas[ing] the amount of rent available for extortion.”29 (Remember, “rent” refers to the surplus produced by government regulation, which different interests fight over—with the interest at issue here including the politician.) Increasing “extortion”-inducing “rents” produces only one thing: more extortion!
That wasn’t exactly the purpose of these sunsets, either when pressed generally (as they were, most importantly, by President Carter) or specifically in the context of taxes. Indeed, the first tax extenders were created as a genuine compromise to test whether a controversial predication about tax revenue was true. In 1981, Congress enacted Reagan’s idea of a credit for research and development. Some on the Left doubted the credit would produce the revenue the Reaganites predicted. As a compromise, the credit was made temporary, so that the actual effect could be measured.30
Harmless enough—as were other original sunsets for tax provisions, all either experiments or addressing a temporary problem (such as the benefits granted to employees working in or near the World Trade Center affected by the attack on 9/11).31 But if the road to hell is paved with good intentions, then the paving here has certainly worked. For the numbers should give us a clue as to why these intended sunsets were never actually going to happen. In the first twenty-five years of the life of tax sunsets, only two were allowed to expire—and one of those was renewed in the next session of Congress, with a retroactive gift given to cover the lapse.32
The lie to this game becomes clear, Kysar argues, when you look again at the very first “tax extender.” For, whatever skepticism there was at the beginning, most economists agree that this Reagan idea was a brilliant one. The tax credit really did produce more growth and revenues than it cost. It was perfectly tuned to induce growth and investment—precisely the purpose any such benefit would have.
So once that point had been proven, why didn’t Congress just