Paying for Indecision

The Wall Street Journal highlights a phenomenon that has been creeping up on us for two decades but has exploded into visibility this past week:

Welcome to the world of the temporary tax code.

In the late 1990s, there were typically fewer than a dozen tax provisions that had just a limited lease on life and needed to be renewed every year or so.

Today there are 141.

Now Congress, taking up a deal worked out between the Obama administration and Republican leaders, is poised to turn the whole personal income-tax system into something of a temporary structure. [snip]

The U.S. will have no permanent regime governing levies on salaries, capital gains and dividends, the Social Security tax, as well as a slew of targeted breaks for families, students and other groups.

There are obvious reasons why the temporary tax regime has arisen. Politicians find it much easier to leave the tough decisions to the next guy, and partisans won’t let them sign on to long-term solutions that imply a permanent defeat for their position.

A tax code that is subject to wholesale, frequent changes has its own consequences to the economy, quite apart from the specifics of marginal rates and which items are taxable or deductible. Planning has always been difficult, but now it’s extremely so. Public companies that normally are putting on the finishing touches to next year’s plans now have to burn the New Year’s Eve oil to ready presentations to their Boards, presentations that will be rife with qualifications and caveats.

Companies have been criticized for sitting on hordes of cash and refusing to hire, spend, and expand, but executives know that they can be fired, if not disgraced and personally ridiculed, for making wrong decisions. If delay improves the quality of the decision-making or allows some of the uncertainty to clear, then delay it shall be. And not everyone is a mogul who risks only other people’s money.

Bill Wiygul, whose family owns four auto-repair businesses in northern Virginia, estimates he and his wife would pay at least $20,000 more in various taxes in 2011 if Congress doesn't address parts of the code, including the Alternative Minimum Tax. The AMT snags a growing number of filers each year, and while Congress regularly limits the number affected—and likely will do so again this week or next—this has so far been an AMT "patch," never a permanent fix.

Mr. Wiygul says he would trade an increase in tax rates for greater certainty if the pain was shared by all. "We are petrified," he says. "We would be more actively pursuing expansion opportunities if we felt like the climate was more certain."

As we used to say back in the Sixties, not to decide is to decide.