The future of The American Jobs and Closing Tax Loopholes Act of 2010 (H.R 4213- a/k/a the “tax extenders bill”) remains highly uncertain. Even so, an examination of the arguments for and against the bill’s provisions is a valuable exercise. Many of these conflicting arguments are reflected in the wider debate over how to promote economic recovery while also assuring no recurrence of the world-wide financial crisis.
Questions such as: Which monetary policies and investment structures to use? How they should be put into place, and what specific goals should be achieved? animate the debate. Nevertheless, there is near universal agreement on the objective of re-establishing economic strength and stability while not rewarding the parties viewed as responsible (in whole or in part) for causing the economic collapse. These contrasting positions exist in a microcosm in the debate over the The Build America Bonds program.
Some argue in favour of continuing and expanding a program that has successfully created government and government contracting jobs at a low cost and in a reasonable time-frame. The Obama Administration cites a rise in state and local infrastructure development and job creation as being the direct results of the access to low cost financing that the bonds make possible for these governments http://www.whitehouse.gov/omb/budget/.
Because these benefits are being delivered via a direct subsidy and not through a third party, others contend that 1) the cost savings to issuers is greater than the cost of the program to the federal government http://www.treas.gov/offices/economic-policy/4%202%2010%20BABs%20Savings%20Report%20FINAL.pdf and 2) tax compliance is higher for those benefiting from the subsidies: http://www.treas.gov/offices/tax-policy/library/greenbk10.pdf
An additional claim is that the program’s expansion of the taxable bond market serves to lower the pressure on the traditional municipal bond market and, thus, lowers interest costs for issuers of those securities http://www.treas.gov/offices/tax-policy/library/greenbk10.pdf
Opponents argue that the Build America Bonds Program, while portrayed as tax relief, is, in reality, a tremendous government spending program that imposes upon taxpayers nationwide the costs of excessive underwriting fees paid to the original instigators of the economic distress: Wall Street banks. In addition, they argue that the subsidy provided to state and local governments is unnecessarily generous, and that it encourages excessive borrowing that could further impair state finances. Excessive borrowing by another major player in the U.S. economy, homeowners, played a major role in fueling the current crisis.
As the tax-writing committees struggle to develop tax policies that will create jobs in the near-term future while avoiding the mistakes of the recent past, debates like this one are likely to continue.