Law and the Limits of Government

Law and the Limits of Government

Temporary versus Permanent Legislation

Frank Fagan

Why do legislatures pass laws that automatically expire? Why are so many tax cuts sunset? In this first book-length treatment of those questions, the author explains that legislatures pass laws temporarily in order to reduce opposition from the citizenry, to increase the level of information revealed by lobbies, and to externalize the political costs of changing the tax code on to future legislatures. This book provides a careful analysis which does not normatively prescribe either permanent or temporary legislation in every instance, but rather specifies the conditions for which either permanent or temporary legislation would maximize social welfare.

Chapter 5: Temporary tax legislation

Frank Fagan

Subjects: economics and finance, law and economics, law - academic, constitutional and administrative law, law and economics

Extract

While temporary fiscal policies are at least as old as the American constitution, the frequency and intensity of their strategic use in the United States has sensationally increased in the past fifteen years. At the beginning of 2000, more than one hundred American tax provisions were scheduled to expire, including some of the largest tax cuts in history. Only a decade prior, less than two dozen relatively inconsequential provisions were scheduled to expire. The increase from 1990 to 2000 continued into the following decade: during fiscal year 2011, 251 tax provisions were scheduled to expire (Kysar 2011: 1010). As a result, there has been a steady output of legal scholarship on temporary taxation, which, in the main, observes that temporary timing rules promote irresponsible fiscal imbalances for three reasons. First, temporary timing rules ease the passage of spending increases and tax cuts. Because temporary tax legislation lasts for a relatively shorter time if it is not extended, it more easily satisfies current budget rules and is less opposed by opposition legislators and citizens. It therefore is more likely to become law. Second, most of the scholarship recognizes that temporary tax legislation easily circumvents budgetary rules that require offsetting, i.e. concomitant increases in taxation or reductions in outstanding spending, that are, in theory, supposed to render new spending increases or tax cuts budget neutral.

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