Bush Tax Cut Hampered By 'Sunset' Provisions

By Christine Hall | July 7, 2008 | 8:28 PM EDT

(CNSNews.com) - Most of the provisions in the $1.35 trillion Bush tax cut package are set to expire by 2011, thanks to arcane congressional budget rules. Business groups and other tax cut proponents say a disappearing tax cut makes planning for the future difficult and costly and threatens the U.S. economy.

"At the end of the fairy tale, everything will turn into a pumpkin at midnight and go away," said Rep. Chris Cox (R-Calif.), chairman of the House Policy Committee, speaking in the U.S. Capitol Thursday.

"This is creating enormous problems for people across the country" as they try to plan for retirement and the future of their small businesses, said Cox. That's because the cut in marginal tax rates, the phase-out of the marriage tax penalty and death taxes, and provisions making pension plans more portable are all going to expire by 2011.

"They are finding they don't know what the rules are going to be because they're all sunsetted," said Cox. "Lawyers and accountants across American are not only charging their clients a lot of money to answer these questions, but they don't know the answers."

Cox was joined by several other Republican lawmakers and representatives of the National Association of Manufacturers, the National Association of Wholesaler-Distributors, the U.S. Chamber of Commerce, the National Federation of Independent Businesses and the 60 Plus Association.

The business groups also argued that any money spent to avoid the return of the death tax will be money that would have been better spent on new employees and other types of investments to help expand the U.S. economy. An NFIB source noted, for example, that small businesses can spend $20,000 or more annually just to buy a life insurance policy to pay the estate tax in the event the owner dies.

Although Cox and his allies want to change the law as early as this year, other observers say extending the tax cut won't be easy or swift.

Chris Edwards, director of fiscal policy for the Cato Institute, believes that getting Democrats to agree to repeal the sunset provisions will come with a price.

"Democrats will say, 'it will add another $200 billion in cost, and we've already deleted the surplus, there's no money left,'" said Edwards. "So I think the game that the Democrats are playing is ... to try to extract some gift that they want, like more pork for poor people or something -- maybe making the earned income tax credit or child credit bigger."

The trouble began even before the Bush tax cut package was passed by Congress on May 26. The sunset provision was inserted into the legislation, in part, to get it past procedural rules.

Budget rules applying to both the House and Senate make it difficult to pass tax cuts that reduce revenue beyond the life of the ten-year budget.

The Senate's "Byrd rule," named after Sen. Robert Byrd (D-W.V.), is another such roadblock.

The Senate adopted the Byrd rule in 1985 at Byrd's behest to thwart the common practice of loading the budget down with last minute, big ticket spending items (or tax cuts) that increased the deficit.

The rule is triggered when a senator objects to an "extraneous" change that has been made to the final budget bill. It's difficult to waive the rule because such an effort requires a three-fifths vote -- 60 senators out of 100.

The House has long chafed at seeing its hard-fought legislative agenda time and again altered by the other chamber's Byrd rule.

"American taxpayers should not be held hostage to technical Senate rules," grumbled Rep. Kenny Hulshof (R-Mo.), who is sponsoring a bill to make the Bush tax cut permanent.

See also:
Bush Signs Historic Tax Cut Into Law (June 7, 2001)
Tax Relief Passed by Congress (May 26, 2001)