Now Cometh the Tax Cuts

Now Cometh the Tax Cuts

With the Senate and now the House passing their respective budget reconciliation spending cut bills, attention turns to the tax cutting part of the reconciliation process provided for in the budget resolution passed in the spring. We reported last week the Senate Finance Committee had to cancel markup on the bill due to opposition from moderate GOP Senator Olympia Snowe (ME). This week that problem was swept away when Chairman Grassley (R-IA) agreed to remove provisions extending tax cuts on capital gains and dividends, thus gaining Snowe’s support, and then, with some fancy footwork, getting conservatives to hold their fire with promises that tax cuts for wealthier constituents could possibly be negotiated back into the bill during conference with the House.

With that basic bait-and-switch promise in place, the bill sailed through committee and was passed on the Senate floor the night of November 17th 64-33, with ‘no’ votes from 4 Republicans and ‘yes’ votes from 14 Democrats: Baucus (MT), Johnson (SD), Nelson (NE), Salazar (CO), Pryor (AR), Lincoln (AR), Landrieu (LA), Feinstein (CA), Cantwell (WA), Dayton (MN), Stabenow (MI), Carper (DE), Schumer and Clinton (NY).

The parallel House bill was passed out of committee this week, but the floor vote is being held in abeyance until the House returns the week of December 5. In keeping with the spending cut bills, the respective tax cut bills are very far apart in terms of substance. While they are both weighing in at about $60 billion in cuts over 5 years, the huge differences include:
* the Senate bill uses over half that total to fix (for just one year!) the so-called alternative minimum tax so that it does not hit middle income taxpayers, an expensive but politically important fix completely absent in the House bill;
* the House bill includes 2-year extensions of capital gains and dividends tax cuts, which,as noted above, were left out of the Senate bill in order to get it out of Committee;
* the Senate bill includes tax incentives for areas hit by hurricanes Katrina and Rita, but the House bill does not;
* the Senate bill includes incentives for charitable giving, and the House bill does not;
* the Senate bill includes a one-year $5 billion tax increase on big oil companies, not only not in the House bill but fiercely opposed by the White House, House leadership, and many Western Senators who nonetheless voted for the bill with promises, again, that it could be ‘fixed’ in conference.

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or contact John Crabtree, johnc@cfra.org

Center for Rural Affairs
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