Toll in "Temporary" Taxes: $1.4 Trillion

By, Sam Batkins and Douglas Holtz-Eakin

When politicians on Capitol Hill start to forecast the demise of once-sacrosanct middle-class tax cuts, the budget situation must be dire. Steny Hoyer surprised many when he issued the opening salvo in what will be a war over expiring middle-class tax cuts.

Mr. Hoyer noted, "We need to have a serious discussion about their implications for our fiscal outlook, including whether we can afford to permanently extend them before we have a real plan for long-term deficit reduction."

One lesson from Hoyer's tax assault on the middle-class is that "temporary" tax cuts face the chopping block, but "temporary" tax increases live to be paid another day.

The federal government has been practicing Hoyer's budget sleight-of-hand for over a century, and Americans have paid the price for this deception. As an example, there are five excise taxes that were instituted generations ago that have failed to expire. Together, the gas, telephone, tire, sports, and firearms tax have collected more than $1.4 trillion (adjusted for inflation) from taxpayers.

The gas tax was the creation of an analogous period of budget unrest. The Revenue Act of 1932 enacted a "temporary" tax on gasoline. After passage the Senate Finance Committee reported, "It would be entirely appropriate, therefore, for this committee, which originated the federal gasoline tax as a temporary expedient, to recommend its repeal."

Not so fast. After $125 million in collections, politicians were intoxicated with this new stream of revenue and they retained the levy. Motorists who have paid more than $1 trillion in gas taxes since 1932 are somewhat familiar with the pricey vestiges of Congress' "temporary" tax.

The gas tax is not the only "temporary" tax hike from the Revenue Act of 1932. In response to massive budget deficits ( only 4.6% of GDP, compared to more than 10% in 2009), Congress enacted 24 excise taxes, including the gas tax. Some of the measures, taxes on chewing gum, brewers' wort and malt, and toilet preparations, expired as scheduled. Others, the tire, sporting goods and firearms tax, were extended.

Today, every hunter pays the firearms tax, which includes shells and cartridges. This measure has cost taxpayers more than $2.8 billion (inflation adjusted) since its inception. The levy, like other manufacturers' excise taxes, was scheduled to expire in 1936, but Congress continued the tax.

The tax on sporting goods initially included cameras and lenses, but it is now limited to bows, arrows, and fishing equipment. (Congress appears to have it out for hunters and fisherman.) Taxpayers continue to pay millions for a tax that was scheduled to expire generations ago.

This article originally appeared in Investor's Business Daily on July 14, 2010