'Temporary' tax cuts plentiful, and often long term

WASHINGTON -- President Obama wants to extend this year's payroll tax cut for another year. But if history is any guide, it could be on its way to becoming a permanent part of the tax code.

No fewer than 65 tax cuts are set to expire in 2011, a testament to the scores of temporary reductions that riddle the tax code. Most are extended year after year.

The payroll tax cut — from 6.2% to 4.2% for about 160 million workers — is far broader than most of the so-called "rifle shots" aimed at helping one industry or interest group. It costs $112 billion in lost revenue to the Social Security Trust Fund, which must be made up from general revenue.

Still, senior White House officials acknowledge it may be difficult to raise the tax rate back to 6.2% unless the economy improves and average Americans can afford, on average, a $1,000 tax increase. The other way to do it, they say, is through a complete overhaul of the tax code — something that could take years to complete. The officials spoke on condition of anonymity because they were not authorized to speak publicly.

"This is going to become permanent law," says Scott Hodge, president of the Tax Foundation, a non-partisan tax research group. "Once these things get built in, cooked in to the system, they're awfully difficult to get rid of."

Tax cuts are often temporary, with expiration dates, because of the arcane way in which Congress budgets. President George W. Bush's 2001 and 2003 tax cuts, for example, were set to expire 10 years later so they could be approved as part of the budget process with only 51 Senate votes, rather than 60.

Still, Bush's cuts were extended for two years last December, and most of them are almost certain to be extended again in 2012. Only about $700 billion in tax cuts on upper-income taxpayers are in jeopardy. That makes Bush's cuts more durable than the tax increases President Bill Clinton signed in 1993.

'Temporary' cuts remain

The number of expiring tax provisions grew from just nine in 1998 to 73 in 2009, partly because of the Bush tax cuts. Many "temporary" cuts from 1998 remain on the books today, including tax credits for research and development and for businesses hiring people from the welfare rolls.

One of those coming up for renewal is a steadily increasing income exemption that shields more than 20 million taxpayers from paying more under the Alternative Minimum Tax. The last two-year extension cost more than $136 billion.

Not all tax cuts are extended. Some that are targeted at disaster victims expire after the recovery. Similarly, a few that are aimed at victims of tough economic times are allowed to sunset, such as the 2009 tax credit for first-time homebuyers and a "cash for clunkers" rebate for the purchase of fuel-efficient cars. A tax credit for ethanol is set to expire this month.

The majority of expiring tax cuts are combined every year into a multibillion dollar "extenders" package that creates a lobbying frenzy among businesses and industries that rely on the tax breaks. The package can include major provisions, such as a first-year depreciation bonus on plants and equipment, to obscure ones that affect only NASCAR or bow-and-arrow manufacturers.