The Fiscal Cliff as Reelection Strategy: Rethinking the Temporary Taxation Debate
55 Pages Posted: 2 Feb 2014 Last revised: 9 Sep 2014
Date Written: August 28, 2014
Recent scholarship contends that temporary tax provisions are socially costly because they increase rent-seeking activity and create uncertain investment environments. This Article challenges that view, and shows that, while temporary tax provisions may increase rent-seeking activity, such activity is not always socially costly; and while temporary tax provisions may create uncertain investment environments, such environments are not always unfavorable for private investors. The real problem with temporary tax provisions, simply put, is that legislators use them to win reelection and externalize a number of costs in the process. Once this fundamental point is grasped, the normative conclusions that follow sharply differ from those offered by prevailing scholarship. Some scholars for example, have recently recommended that all tax legislation should default to permanent status in order to decrease rent-seeking and investment uncertainty. Yet other scholars have recommended that all tax legislation should default to temporary status for the same reasons. Given that legislators use temporary tax provisions to win reelection however, both recommendations miss the mark. Not only are the social costs of rent-seeking and investment uncertainty unclear, recommendations of self-enforced congressional default rules will not adequately constrain lawmakers from strategically seeking reelection. This Article recommends therefore that temporary tax provisions should, at the constitutional level, require immediate offset.
Keywords: temporary taxation, timing rule, sunset clause, budget window
JEL Classification: E62, H61, K34
Suggested Citation: Suggested Citation