Accounting News

Wednesday, February 1, 2012
Senate Looking at Tax Extenders

The Senate Finance Committee is holding hearings this week to investigate a better solution to tax extenders. These are portions of the tax code that only last for a year or two and then need to be "extended" or they will expire. This creates problems for the IRS and tax preparers. The problem exacerbates when the extensions happen at the very end of the year. And now they are passing extenders that are not even full years. The poster child of the problem is the payroll tax cut that was passed in December for two months. Now the wrangling over an extension has already begun.

The Finance Committee is looking to reduce the extenders and simplify the tax code. They have the negative effect of reducing the tax base and requiring higher tax rates. They also require a great deal of legislative time every year.

The fundamental problem is that the Senate does not want to simplify the tax code. They are the primary beneficiary of a complex tax system and extenders in particular. When an extender comes up for a vote then they are contacted by lobbyists and special interests. The lobbyist brings in campaign donations in exchange for extending the tax break. The Senate isn't going to cut off a great source of campaign cash.

So don't hold your breath waiting for a simple tax code. It may make perfect sense, but the Senate won't cut out their campaign money without a fight. More likely they will hold some hearings, make grandiose speeches, and then let the whole thing fade away.