CHN: House Passes Economic Stimulus Bill
Measure Provides $99.5 Billion in Tax Breaks for Corporations, Wealthy
On Wednesday, October 24, the House passed the Economic Security and Recovery Act of 2001 (HR 3090) by a razor-thin 216 to 214 margin. The $103 billion measure has been widely criticized for favoring tax breaks for corporations and the wealthy while ignoring the needs of moderate and low-income Americans. Moreover, critics assert that the bill would do little to actually stimulate the economy.
The House-passed bill would provide $103 billion in fiscal year 2002 and $162 billion over ten years. More than 95% of the bill’s costs are comprised of tax cuts, many of which are permanent. Of the $99.5 billion in tax reductions slated for next year, $71 billion would go to corporations. Corporate tax breaks contained in the bill include capital expense and profit loss deductions, a permanent deferral of taxes on certain income earned overseas, and a repeal of the corporate Alternative Minimum Tax (AMT). According to Citizens for Tax Justice, corporations such as General Motors and IBM would receive more than $100 million each from the changes to the AMT alone.
The House package would also reduce capital gains rates and accelerate the individual income tax rate cuts enacted as part of the $1.35 trillion tax bill passed earlier this year. A capital gains tax cut has been identified by many economists as particularly unlikely to stimulate the economy. Furthermore, according to the non-partisan Congressional Research Service (CRS), almost 80% of the benefits of a capital gains cut would go to the wealthiest 2% of American households.
The GOP proposal does provide for tax rebates to the 34 million low-income Americans who did not receive rebate checks under the earlier tax bill. Democrats as well as the Administration back this provision. The bill also allocates $3 billion in grants to states to provide health care coverage to the unemployed – an amount, many argue, that is woefully inadequate to meet states’ needs.
In addition, HR 3090 speeds up the transfer of $9 billion in federal unemployment insurance trust funds already destined for state unemployment accounts. However, because state legislatures would have to pass new laws to release these funds, this provision is unlikely to have any benefit for unemployed workers until sometime next year.
During floor debate on HR 3090, Democrats offered a $110 billion substitute measure, geared more toward worker protections than the GOP bill. Sharply critical of the Republican response to our sagging economy, Democrats have insisted that Congress address the growing needs of laid-off workers, whose numbers increased to a nine-year high in September.
Under the Democrats’ stimulus plan, a 26-week extension of unemployment benefits would be granted to laid-off workers, and the government would provide a 75% subsidy to help the unemployed purchase health insurance through the COBRA program. The substitute would also provide tax rebates to those who did not receive checks this summer and limited, temporary tax breaks for businesses.
Democrats sought to offset most of the costs of their plan by repealing the reduction of the top tax rate from 38.6% to 35%, a move that would garner approximately $91 billion. The tax rates were reduced under the tax cut bill that passed this Spring. The Democratic substitute failed by a 166-261 margin.
President Bush has praised the House stimulus bill, but it is believed that the Administration would ultimately like to see a smaller package. In the weeks prior to passage of the House measure, the President had urged lawmakers to produce a package that provides $60 billion to $75 billion in tax cuts as well as some new unemployment benefits.
The Senate has been largely critical of the House bill and is expected to pass a scaled-down stimulus package that is more in the range President Bush favors. Senate Finance Committee Chairman Max Baucus (D-MT) unveiled an $70 billion proposal earlier this week that would, like the House bill, provide tax rebates to low-income Americans and some tax breaks for businesses. However, tax cuts under the Baucus plan would total just $35 billion. Senator Baucus’ bill would also extend unemployment benefits by 13 weeks, provide a 50% federal subsidy for COBRA health insurance, and expand Medicaid eligibility. While there is not consensus on Baucus’ bill, Senate leaders remain engaged in bipartisan discussions.