Old tax breaks don’t die

That's it. There's no "but" or "fade away" tacked onto that headline.

Most tax breaks already on the books simply stick around.

Of the 128 tax expenditures reported in 1987 for fiscal year 1988, 100 remained in effect in fiscal year 2007, according to a report by the Joint Committee on Taxation. That's the Capitol Hill panel evaluates tax legislation for Senators and Representatives and is known in tax wonk circles by its not-quite-accurate acronym of JCX.

Tax expenditures are, in basic terms, losses to the U.S. Treasury from certain tax deductions, exemptions or credits to specific categories of taxpayers. That is, they're the tax breaks most of us enjoy at some time in our tax lives.

This latest look at tax expenditures, JCX 15-11 or "Background Information on Tax Expenditure Analysis and Historical Survey of Tax Expenditure Estimates," was prepared in conjunction with today's Senate Finance Committee hearing entitled "How Did We Get Here? Changes in the Law and Tax Environment since the Tax Reform Act of 1986."

As the document's name indicates, the JCX staff created the report "to provide a discussion of the concept and measurement of tax expenditures. as well as providing historical background on tax expenditures."

Recent tax legislation history shows that of the approximately 270 tax expenditures either in existence in fiscal year 1988 or adopted at any time between 1987 and 2007, 202 remained in place in 2007.

"Thus, in general, tax expenditures, once adopted, tend to stay in place," notes JCX staff.

Figure 1 — Joint Committee on Taxation
Count of Tax Expenditures, 1987-2007

Despite the Joint Committee's assessment, the President, Congress, most taxpayers and even a handful of lobbyists (mostly from public interest groups) are hopeful that tax reform is on the horizon.

Tough tax reform row to hoe: Today's Senate Finance hearing is the first of a series that will examine ways to remake our current tax system. Not to be a naysayer, but don't get your hopes up too high.

The first target is corporate tax reform. That's because Republicans, now in charge in the House, say corporate tax reform is a topic on which they can work with the Democratic Administration. Despite the nominal bipartisanship, change won't be easy.

Political scientist Christopher Howard of the College of William and Mary points to a perverse bargain between the two major political parties as to why tax reform is so hard to achieve.

"Republicans, in their ideal world, would like major tax cuts and perhaps some spending cuts as well. Democrats still want government to do things. And where they find common ground is they can get government to do things, but by selectively cutting the tax code. It's sort of a convenient Plan B for both parties."

Essentially, Congress is more willing to approve a dollar of tax breaks than a dollar of direct federal spending, even though the effect on government coffers is the same. That's why Congress passed more than $800 billion worth of tax cuts in December 2010.

TaxVox blog, at least back last December when the latest tax deal was cut, is even less optimistic about fundamental tax reform.

But at least we now are talking tax reform. And that's a start. Just be prepared for a very long journey.

Related posts:

• Comparing federal tax expenditures
• Deficit commission tax overhaul, take 2
• State of the Union light on tax talk

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