Red sails in the sunset: the "sunset" tool with the Bush team's help is subverting the U.S. budget process.

• Author: Auerbach, Alan J.

As the U.S. federal government's fiscal position sails further into the red, its course is marked by the "sunset," a curious and previously unusual element of tax legislation. Briefly defined, the sunset is an appendage to a tax law that a change to expire after a sometimes very brief period. Sunsets have existed for several years, and are usually applied to small provisions in the tax code that legislators felt deserved to be revisited. During the 1990s, for example, tax credits for both research and low-income housing came up for reconsideration. Governments also occasionally use temporary tax provisions in attempts to stabilize the economy, providing short-term tax incentives and rebates to spur demand and tax surcharges to restrain it. With the current Bush administration, though. sunsets have assumed a central role in tax legislation. They have become a tool to subvert the budget process.

Rules governing the federal budget process have evolved continually since the passage of the Congressional Budget Act in 1974. Attempts at direct deficit control during the Gramm-Rudman-Hollings period of the late 1980s were followed by the discretionary spending caps and "PAYGO" restrictions on tax cuts and entitlement increases of the 1990s. Since 2001, the controls have been ignored. Rapid growth in discretionary spending and a series of tax cuts have contributed to exploding deficits. In place of explicit limits on the size of tax cuts, President Bush and Congress have adopted the procedure of setting a target revenue cost to be achieved over a ten-year budget "window." In 2001, the target tax reduction was $1.35 trillion. In 2003, the target (under the Jobs and Growth Tax Relief Reconciliation Act) was a more modest $350 billion, and key Senate Republicans threatened to vote against any tax cut with a larger ten-year price tag.

The unenviable task of determining the ten-year revenue cost falls to the Joint Committee on Taxation (JCT). There has been much discussion about whether JCT's methodology should include "dynamic" scoring, incorporating the macroeconomic feedback effects of tax legislation on revenues. But lack of success on the dynamic scoring front has not deterred those who seek to squeeze large tax cuts into small ten-year revenue totals. The sunset provision has become the answer. If each year's net revenue cost cannot be made smaller (through dynamic scoring), then the number of years during which the tax cut officially applies can...