Lazarus Was a Piker or: How the Extenders Bill Resurrects Bad Tax Provisions Year After Year

The Book of John says that Lazarus emerged from his tomb four days after his death. While impressive, Lazarus has nothing on the Section 41 Research Activities Tax Credit. While Lazarus is credited with only one extension, the Research Credit, first enacted in 1981 as a temporary measure, it has been extended at least 12 times — several times after it had expired.

If it’s such a wonderful tool for our economy, as its beneficiaries always say, and if it isy isn’t it just made permanent? There are two main reasons, one only slightly less cynical than the other.


First, the credit costs the government a lot of revenue. The one-year extension in H.R. 4213, the current “extender” bill, is scored as a $6.6 billion revenue-loser. By extending it only a year at a time, the Congresscritters disguise the real cost of the credit, which they have no intention of allowing to expire. Remember this phony accounting the next time some corporate shmoe trembles while Henry Waxman berates his accounting methods.

Even more cynical: it forces the lobbyists for the credit to pay tribute to their Congressional patrons every year to keep their pet corporate welfare provisions alive. A former Congressional staffer explains (my emphasis):

I never understood the “why” about expiring tax provisions until one very late night markup of the “extenders bill” several years ago while I was working for the Ways and Means Committee. Bleary-eyed, one of usually twinkly-eyed members plopped down in a chair next to me in back of the dais–just to take a little rest away from his member’s seat. I asked him “why do we have to do this every year?…why can’t we just pass these things permanently?”

His eyes suddenly twinkled again, as he looked at me with a combination of amusement and disbelief. He said: “Are you kidding me?… We couldn’t do that!… Why, I’d lose all my friends!…Who would come visit me and say kind things to me and do nice things for me then, if they didn’t have to come back every year to ask for these tax provisions?!!

The research credit is just one of 70 or so “temporary” provisions included in this year’s omnibus “extender” bill. Other tax breaks critical to the continued robust functioning of the economy include the Indian employment tax credit, the special short depreciation life for qualified leasehold and restaurant improvements, subsidies for biodiesel, and the all-important “7-year recovery period for certain motorsports complexes.”

To “pay for” these “temporary” provisions, Congress each year reaches deeper into its bag of tricks for permanent tax increases. The chumps this year: private equity, hedge funds, and small professional corporations. When these things “expire” a year later, this year’s victims will continue to pay their higher tax without Congress having to pass another bill; they will be forgotten while Congress is busy looking for its next revenue fix. And like any junkie, it will give up the addiction only when it’s impossible to score.

Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.

The Book of John says that Lazarus emerged from his tomb four days after his death. While impressive, Lazarus has nothing on the Section 41 Research Activities Tax Credit. While Lazarus is credited with only one extension, the Research Credit, first enacted in 1981 as a temporary measure, it has been extended at least 12 times — several times after it had expired.

If it’s such a wonderful tool for our economy, as its beneficiaries always say, and if it is always extended, why isn’t it just made permanent? There are two main reasons, one only slightly less cynical than the other.


First, the credit costs the government a lot of revenue. The one-year extension in H.R. 4213, the current “extender” bill, is scored as a $6.6 billion revenue-loser. By extending it only a year at a time, the Congresscritters disguise the real cost of the credit, which they have no intention of allowing to expire. Remember this phony accounting the next time some corporate shmoe trembles while Henry Waxman berates his accounting methods.

Even more cynical: it forces the lobbyists for the credit to pay tribute to their Congressional patrons every year to keep their pet corporate welfare provisions alive. A former Congressional staffer explains (my emphasis):

I never understood the “why” about expiring tax provisions until one very late night markup of the “extenders bill” several years ago while I was working for the Ways and Means Committee. Bleary-eyed, one of usually twinkly-eyed members plopped down in a chair next to me in back of the dais–just to take a little rest away from his member’s seat. I asked him “why do we have to do this every year?…why can’t we just pass these things permanently?”

His eyes suddenly twinkled again, as he looked at me with a combination of amusement and disbelief. He said: “Are you kidding me?… We couldn’t do that!… Why, I’d lose all my friends!…Who would come visit me and say kind things to me and do nice things for me then, if they didn’t have to come back every year to ask for these tax provisions?!!

The research credit is just one of 70 or so “temporary” provisions included in this year’s omnibus “extender” bill. Other tax breaks critical to the continued robust functioning of the economy include the Indian employment tax credit, the special short depreciation life for qualified leasehold and restaurant improvements, subsidies for biodiesel, and the all-important “7-year recovery period for certain motorsports complexes.”

To “pay for” these “temporary” provisions, Congress each year reaches deeper into its bag of tricks for permanent tax increases. The chumps this year: private equity, hedge funds, and small professional corporations. When these things “expire” a year later, this year’s victims will continue to pay their higher tax without Congress having to pass another bill; they will be forgotten while Congress is busy looking for its next revenue fix. And like any junkie, it will give up the addiction only when it’s impossible to score.

Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.

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