Now, as Congress fashions a new 10-year tax-reduction plan, it's using the same kind of legerdemain. Both the House and Senate versions of the legislation would wean taxpayers off certain taxes only to sock them again two or three years later. Insiders refer to such temporary changes as "sunset" terms, meaning they expire after a time, like daylight at dusk.
The most prominent use of this "sunset" device is in the Senate's elimination of the tax on stock dividends. Under terms of the bill that passed the Senate, 51-49, Thursday night, 50 percent of dividends received by individual taxpayers would be tax-free in 2003. The provision would eliminate taxes on dividends altogether in 2004, 2005 and 2006. Then, unless Congress votes otherwise, current dividend tax rates would return in 2007.
"This is a huge yo-yo provision," said Sen. Max Baucus of Montana, the top Democrat on the tax-writing Senate Finance Committee. "Now you see it, now you don't."
Critics say the practice introduces uncertainty to the tax system and hides the true cost of a tax cut.
The criticism is bipartisan. Even the authors of the temporary cuts hold their noses and hope that somehow the reductions will be extended. Said Sen. Charles Grassley of Iowa, the Republican chairman of the Senate Finance Committee who shepherded the bill through the Senate: "They're bad."
"The longer the tax policy, the better," he said in an interview.
So why do it? To duck congressional budget rules.
The House and Senate set 10-year budget limits. In the Senate, every piece of legislation must fit within those limits. Legislation whose costs exceed the limits must pass by 60 of the 100 votes in the Senate.
President Bush had wanted $726 billion in tax cuts through 2013. But the House, in passing its budget last month, set the tax cut at a maximum of $550 billion over 10 years, and Senate leaders set the limit at $350 billion.
Question: How to fit $726 billion in tax cuts in a $550 billion or $350 billion box?
Answer: Let the cuts expire before the 10 years have lapsed.
Such provisions are written with the understanding that, in truth, they will never be allowed to expire. To do so, after all, would be a tax increase. If the Senate's dividend provision becomes law, rest assured that sometime over the next three years Republicans will seek to extend the dividend tax cut. Opponents would be branded "tax hikers" - a label that could be especially effective in an election year.
The likely outcome? The dividend tax cut would become permanent.
Placing sunset provisions on tax policies is nothing new. Congress regularly passes so-called extenders that renew tax provisions scheduled to expire. But Robert Bixby, president of the Concord Coalition, a group that advocates balanced budgets, said the 2001 tax bill was the first to use expiring provisions in a significant way.
That's how the repeal of the estate tax ended up lasting only one year.
"This time they've thrown all caution to the wind and are openly gimmicking," Bixby said. "It's a bad habit that's gotten out of control. There's no credibility to this."
The Senate plan could change. House Speaker Dennis Hastert (R., Ill.) has already decried its sunset provision on dividend taxes. Before any terms become law, the Senate and House must agree. Negotiations begin soon.
Contact reporter James Kuhnhenn at 202-383-6018 or email@example.com.