A number of tax provisions either expired in 2011 or are scheduled
to expire at the end of 2012. These include the following: The Bush
tax cuts, which reduced income taxes by reducing tax rates,
reducing the marriage penalty, repealing limitations on personal
exemptions and itemized deductions (PEP and Pease, respectively),
expanding refundable credits, and modifying education tax
incentives. The Bush tax cuts also reduced estate tax liabilities
by increasing the amount of an estate exempt from taxation and by
lowering the tax rate; The alternative minimum tax (AMT) patch,
which, by increasing the amount of income that is exempt from the
AMT and allowing certain personal credits against the AMT, prevents
an estimated 26 million additional taxpayers from owing the AMT;
The payroll tax cut, which reduced an employee's share of Social
Security taxes by two percentage points; A variety of previously
extended temporary tax provisions, commonly referred to as "tax
extenders," which affect individuals, businesses, charitable
giving, energy, community development, and disaster relief. As
Congress decides whether to extend these provisions, it may
consider the estimated revenue losses associated with their
extension. The Congressional Budget Office (CBO) estimated that
extending these provisions through 2022, except for the payroll tax
cut, which CBO assumes expires as scheduled at the end of 2012,
would reduce revenues by $5.4 trillion between 2013 and 2022.
Specifically, over this 10-year budgetary window extending the Bush
tax cuts and extending the AMT patch would reduce revenues by $4.6
trillion, while extending the tax extenders would reduce revenues
by $839 billion. The cost of extending the payroll tax cut for one
year (2012) was estimated to be $114 billion over the 2012-2022
budgetary window. In addition to budgetary cost, Congress may also
consider other factors when evaluating tax policy. For example,
when considering extending the Bush tax cuts, policy makers might
consider that the majority of the benefits of this policy accrued
to the top 20% of taxpayers. They might also evaluate the potential
contractionary impact the expiration of these cuts in 2013 may have
on the economy, especially since both the scheduled expiration of
the payroll tax cut and the enactment of budget cuts as part of the
Budget Control Act (P.L. 112-25) are scheduled to go into effect at
the same time. Similarly, Congress may examine the cost
effectiveness of the payroll tax cut. According to CBO, the
short-term stimulus impact of the payroll tax cut is lower than
increasing aid to the unemployed or providing additional refundable
tax credits to low- and middle-income households, but more
stimulative than extending the Bush tax cuts. Finally, Congress may
weigh the lower budgetary costs of short-term extensions of tax
extenders against the unpredictability for taxpayers that can arise
from short-term extensions. In past years, Congress has extended
expiring provisions en masse in one legislative vehicle. In the
112th Congress, Members have considered legislation to extend
certain provisions, including S. 3412, S. 3413, and H.R. 8, which
extend some or all of the Bush tax cuts and the AMT patch. In
addition, the Senate may consider S. 3521, which extends certain
temporary expiring provisions.
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