Process and Policy

Tax policy or tax system design should also consider the application and effects of process of enacting laws and administration of the laws. We've had some odd process things going on in 2010 that affect a few principles of tax policy including simplicity and equity.

What caught my attention on this is an August 6 press release from the Senate Finance Committee - "Committee Republicans Reiterate Call for Mark-up of Expiring Tax Relief." At first I thought they were talking about the 73 provisions that expired at the end of 2009 - many of which a majority of Congress wants to renew, such as the research tax credit. But, they are talking about some of the 2001/2003 tax cuts that they want to extend by the end of this year (after 7 years of knowing they were temporary). The announcements includes this statement of why action now is needed: "to bring some certainty of continued tax relief in a struggling economy."

What about the certainty that could have been used earlier this year or even the end of 2009 on the provisions that expired at the end of 2009 including the AMT patch?

While many people believe that many of the expired provisions and the AMT patch would be extended in 2010, the fact that they have not been means that taxpayers cannot consider them in calculating estimated tax payments and businesses cannot consider them in their income tax provisions on their financial statements. When they do get extended, taxpayers find they have paid too much estimated taxes - money they could have used for other purposes during 2010.

What is also puzzling is that the PAYGO legislation passed in February 2010 basically gave a free ride to the AMT patch and many of the 2001/2003 tax cuts that apply to those making under $250,000 (or $200,000 if not married). So Congress hasn't been delayed because of the challenge of finding ways to pay for the AMT patch and many of the expiring 2001/2003 tax cuts. So why the delay? Why the added complexity with respect to delaying the 2010 AMT patch?

[For a nice overview of the PAYGO legislation enacted in February 2010, see this White House/OMB website - here.]

For the provisions that expired at the end of 2009, it is past time to determine which should permanently expire and which should be extended or even made permanent. And, given the delay, Congress really needs to consider any extension as not to December 2010, but to December 2011 at a minimum so they don't have taxpayers rightfully asking in January 2011 what will happen to the provisions that expired at 12/31/10.

Here, it is not only the tax system design (such as flaws with the AMT itself), but also the process that is causing complexity and some inequities.

Troubling and odd.