Every few years Congress engages in a ritual extension of expiring tax provisions. On the same day the House passed its landmark tax reform bill, the Senate Finance Committee introduced the Tax Extenders Act of 2017 (S. 2256).[REF] The bill extends targeted temporary tax provisions—most of which expired in 2016—for a variety of business operations, individual expenses, and industries.

Almost every extender in this year’s package grants an economic privilege tailored to some particular group or business interest. By picking winners and losers, these corrupt policies distort efficient market outcomes. They thereby hamper economic growth and reduce opportunity for individuals and businesses whom Congress did not shower with special favors. Congress should allow all 35 tax extenders to expire.

This year, Congress is likely to include the proposed package of extenders along with some other must-pass bill, obscuring the numerous special interest subsidies in a broader legislative package. Reports indicate that Congress may attach the tax extenders to a looming budget deal, using the threat of a government shutdown to distract from the tax package. Such deals almost always waive spending constraints, such as the 2010 Pay-As-You-Go Act, allowing Congress to provide deficit-financed handouts through the tax code.

Narrowly tailored tax benefits are poor tax policy and destructive economic policy. The most prevalent tax extenders, for example, privilege government-favored energy policy over potentially more efficient market alternatives. They are even worse when such subsides masquerade as temporary policy, and then remain as an ongoing permanent feature of the tax code.

Temporary Tax Policy Is Bad Tax Policy

Temporary tax extenders have been the posterchild for America’s dysfunctional tax code. They signal the dire need for comprehensive tax reform. However, as part of the most wide-ranging tax rewrite since 1986, Congress was unwilling to eliminate many narrowly tailored tax subsidies and unwilling at the same time to extend them permanently.

The last time Congress passed an extenders package, at the end of 2015, Republicans claimed tha[REF]t confusion over temporary tax policy “ends with this bill.”[REF] For a short few days, the omission of the extenders from the Tax Cuts and Jobs Act seemed to fulfill this promise and was a bright spot in the battle to eliminate narrowly tailored incentives in the tax code. Finally, they would be allowed to expire. Unfortunately, if the Tax Extenders Act moves forward, temporary tax extenders will remain a recurring feature of the U.S. tax code.

Periodic temporary extensions are a poor way to construct tax policy, budget policy and economic policy. Temporary re-authorizations mask the true cost of what are effectively permanent policy features. They provide an opening for politicians to request patronage from special interests on a semiannual basis, and create economic uncertainty, which distorts long-term financial business planning and can slow economic growth because businesses need policy certainly to make long-term investments.[REF]

Tax Credits

More than half of this year’s tax extenders package endows privileges in the form of tax credits. Tax credits are a popular way for Washington to subsidize politically favored activities without actually appropriating any funds. The most numerous of these incentives are intended to encourage energy production and energy conservation.

As a policy tool, tax credits are poorly designed incentives; they introduce unnecessary complexity and ambiguity to the tax code and often poorly target the desired activity.[REF] The government’s use of the tax code to pick winners and losers has harmful economic effects on American families and businesses, by limiting their access to market-determined products and a less dynamic economy.

In the Tax Extenders Act, the Senate would extend 20 temporary tax credits, all of which expired at the end of 2016. In each case, these policies would be retroactively extended to include past investments made in 2017. As a matter of economics, a retroactive tax subsidy provides no incentive to invest in targeted technologies or locations. Instead, retroactive tax incentives accrue as a onetime windfall to investors. To the extent that the extenders bill is retroactive, it is a pure transfer to moneyed political interests, without the intended effect of incentivizing favored industries or products.

The bill could rightly be considered an energy-subsidy bill as two-thirds of the provisions are energy-related. Among the retroactively extended investment tax credits are those for hybrid solar lighting systems, fuel cells, geothermal heat pumps, combined heat and power systems, and small wind power.

Even when the credits apply to future investments, Congress does no service to these energy technologies and companies by subsidizing them. Tax credits for a specific resource or technology manipulates private-sector investment based on political agendas rather than market realities, distorts markets, and creates competition for subsidies rather than competitive companies.[REF]

Accelerated Depreciation and Expensing

Unlike targeted tax credits, some pro-growth tax policies do reward economic growth in a neutral way. Expensing and accelerated depreciation, properly conceived, allow a more neutral treatment of capital expenditures. Unfortunately, the tax extenders only allow these beneficial provisions for narrow interests, such as race horses, NASCAR complexes, and biofuel.

Under the 2017 Tax Cuts and Jobs Act, new short-lived capital investments can be fully expensed for the next five years, when the temporary provision begins to phase out. Expensing allows companies to deduct the cost of investments at the time they occur rather than deducting that cost over many years based on cumbersome depreciation schedules. For those purchases that can be expensed, the provision removes a current tax bias against investment.

Full expensing should be permanent and afforded to all business purchases, not just used to favor new equipment or certain other parochial interests. Congress should resist the temptation to extend any narrowly tailored expensing or accelerated depreciation provision without first expanding its availability to all purchases without an expiration date.

Work Still Ahead

It would be a shame if Congress upended the success of the just passed Tax Cuts and Jobs Act by reanimating dozens of expired tax preferences. By not extending bad policy, the tax code can be improved through attrition.

A minority of the tax extenders that have economic benefits should be debated on their merits in future tax legislation, rather than bundled with pure subsides. In addition to expensing, there is a provision that provides capital gain protections for timber investments. This is a good policy which protects long-term investments from double taxation, is pro-growth, and works to remedy a fundamental flaw in the income tax system. Future legislation should address the treatment of timber and expensing permanently, without attaching subsidies for other industries.

The Tax Cuts and Jobs Act created a bevy of new expiring tax cuts which will also need to be extended to keep taxes from going up on millions of Americans. However, without spending restraint, Congress will find it difficult to permanently extend good tax policy. In the face of rising deficits and an unwillingness to address increasing spending, legislators have historically sought new sources of revenue or allowed tax cuts to expire.[REF] Portions of President Ronald Reagan’s tax cuts in 1981 and President George W. Bush’s cuts in the early 2000s were ultimately reversed. Thus, spending reforms are a critical component of sustainable tax reform amid high government deficits and debt.

The tax extender’s subsidies for railroads, electric vehicles, energy-efficient homes, and rum producers, just to name a few, should be allowed to expire forever. If Congress and the President are serious about removing the federal government from the business of picking winners and losers in the private market, there are many other permanent tax subsidies that also need to be repealed.[REF] Future tax legislation should extricate the tax code from subsidizing privileged interests of all types.

—Adam N. Michel is a Policy Analyst in Tax and Budget Policy in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom, at the Heritage Foundation.