NCPA - National Center for Policy Analysis

There is No Such Thing as a Permanent Tax Cut

February 26, 2003

It will take 60 votes in the Senate to make President Bush's tax cuts permanent because it takes that many votes to cut off a filibuster, which Democrats would use to defeat the effort. Therefore, tax cut supporters will have to use a complicated legislative procedure known as reconciliation to avoid a filibuster.

Under reconciliation, only a simple majority is needed because there is a statutory time limit on how long a reconciliation bill may be debated.

  • But the catch is that no changes in law enacted under reconciliation may be made permanent.
  • They can only be in effect for 10 years at most -- which is why the estate tax is scheduled to be phased out, only to return in 2011.

Assuming that reconciliation is used, the same problem will arise this year as well.

  • If taxes on dividends are cut or any other provision of President Bush's proposal is enacted, it cannot be made permanent and must go away in 10 years.
  • Therefore, taxpayers cannot really make plans beyond 2013 based on any tax changes that might be implemented this year.

Thus, there will be ample opportunity in future years to revisit every single provision of this year's tax bill, and failure to take action on extending its provisions will result in their automatic repeal and a de facto tax increase.

Unfortunately, the prospects for improving tax policy are nil because it would take 60 votes in the Senate to change the rule that prevents tax provisions from being in effect for more than 10 years at a time. Until that happens, everyone should just strike the term "permanent tax cut" from their vocabulary.

Source: Bruce Bartlett, "There is no such thing as a permanent tax cut," NCPA, February 26, 2003.

 

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