Testimony on the 2001 and 2003 Tax Cuts

As you may have heard, the tax cuts that were originally enacted back in 2001 and 2003 are scheduled to expire at the end of the year.

In the good old pre-crisis days, many members of the budget community (myself included) used to say things like “maybe the looming expiration of the tax cuts will finally provide enough pressure to get Congress to enact fundamental tax reform.”

That notion seems rather quaint today. Congress can’t even figure out what to do with the tax code for 2010, which is already more than half over.

For example, we still don’t know whether millions of Americans will be newly subject to the alternative minimum tax. We don’t know what will happen to all the “tax extenders.” And we don’t know whether Congress will really allow all estates of people who die in 2010–including George Steinbrenner–to completely avoid the estate tax (which will then return in full force at midnight on New Year’s morning).

Given that record, most hope for fundamental tax reform is now focused on the President’s fiscal commission. Congress, meanwhile, is now gearing up to figure out what to do about the expiring tax cuts. On Wednesday the Senate Finance Committee held a hearing to discuss the distributional and economic growth effects of extending the tax cuts. I appeared as a witness.

You can read my written testimony here.

You can find the opening statements of Chairman Baucus and Ranking Member Grassley and testimony of the other witnesses here.

You can see video of the hearing here.

As you might imagine, the five witnesses didn’t always agree. There was a strong consensus, however, that our tax system needs fundamental reform. The challenge is figuring out how to do it … and do it well. During the Q&A, Doug Holtz-Eakin had one suggestion: lock the business community out of the discussion entirely. Why? Because a basic principle of tax reform will be eliminating special interest provisions and that will be easiest if business interests aren’t in the mix protecting their favorite provisions.