CHN: Congress Ponders Multiple Tax Cuts
Despite a record-high federal deficit, Congress may be contemplating a collection of tax cuts this year, many of which are expected to benefit the well-off. The budget resolution approved on April 28 makes room for $100 billion in tax cuts over five years, but does not specify which taxes shall be cut. Of this amount, $70 billion is protected through reconciliation instructions. Under these instructions, the House Ways and Means and the Senate Finance Committee must produce a bill that cuts taxes by $70 billion over five years by September 23. In the Senate, a tax bill that is reconciled cannot be filibustered, and needs only 51 votes for passage, rather than the typical 60.
Because the resolution makes room for a total of $100 billion, Congress could pass at least another $30 billion in additional tax cuts outside the reconciliation process — although these would require 60 votes for passage in the Senate.
Because the reconciled tax cuts require just 51 votes in the Senate, it is likely the tax-writing committees will put the more controversial tax cuts in a reconciliation bill and save more popular, middle class tax cuts for separate legislation likely to attract 60 votes. To further complicate the tax picture, Chairman Thomas plans to develop a Social Security bill in his committee and has said he would like his bill to be a comprehensive retirement reform bill . Although nothing is certain yet, Chairman Thomas has expressed interest in developing a package of tax cuts revolving around savings plans to combine with Social Security “reform”.
The Cuts Being Contemplated
Some of the tax cuts being considered include:
• Extending rate cuts already made to capital gains and dividends but which are due to expire in 2008. These tax breaks alone would give an average $38,000 per year to millionaires.
• Fixing the alternative minimum tax (AMT) for one or more years. The AMT was originally designed to ensure well-off taxpayers pay at least some level of tax. Because it has not been adjusted over the years, increasing numbers of upper middle-class taxpayers are paying the AMT. Adjusting the AMT is a fairly popular tax cut and could probably garner more than 60 votes of support in the Senate.
• Repealing the estate tax. Under current law, the estate tax will phase down until 2010, at which time it disappears completely. In 2011 it is scheduled to reappear at 2001 levels. In the past, the House has voted to fully repeal the estate tax, but so far it is not likely that 60 Senators are willing to vote for full repeal. The cost of full repeal is estimated to be $1 trillion over ten years. Because repealing the estate tax would be paid for with borrowed money, the $1 trillion cost includes interest on the increased federal debt. Several Senate Democrats and some Republicans are discussing the possibility of reducing – not repealing – the estate tax. The estate tax – dubbed by some the Paris Hilton tax – only affects the very wealthiest Americans.
• Extending various expiring tax breaks for corporations, including a research and development tax breaks. This is a popular set of tax cuts that could probably get more than 60 votes in the Senate.
In addition, as part of a retirement / Social Security bill, Chairman Thomas may consider removing income limits on Roth IRAs, IRAs and 401k plans or making changes to Health Savings Accounts. These changes would be very expensive and would almost exclusively benefit the well-off. Middle and low-income tax payers would benefit very little, if at all, from changes such as these because they are already having a difficult time saving for retirement. Many low-income workers do not have access to a company 401(k) plan – and those who do tend not to be able to contribute the maximum amount, so lifting the ceiling would not help them.
Advocates are concerned that additional tax cuts add to the growing pile of debt and further shrink the capacity of government to provide medical care, improved nutrition, education, or other assistance that invests in people and communities.