CHN: Senate Passes More Tax Breaks for Wealthy
Budget Cuts Bill to Offset Part of Tax Breaks
An additional $70 billion in tax breaks were approved by the Senate by a margin of 66 to 31 on Thursday, February 2. The $70 billion in tax breaks are not paid for, deepen the deficit and mostly benefit higher income households. The tax cut bill (H.R. 4297) is phase two of the budget reconciliation bill (see story in this issue) that cut nearly $40 billion mostly from services for the low-income. To see how your senators voted: http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=2&vote=00010
A Second Senate Debate on Tax Reconciliation
The Senate originally passed a tax reconciliation bill on November 17 (S. 2020); the House later approved its version on December 8 (H.R. 4297). Senators had an unusual opportunity to re-debate the tax reconciliation bill because the Constitution requires revenue measures (tax bills) to originate in the House. Therefore the Senate was required to consider the House bill.
Key Differences Between the House and Senate Versions
Several key differences remain between the House and Senate bills and those differences will have to be worked out in a conference committee:
Size. The House bill contains a little less than $60 billion in new tax breaks, compared to the Senate’s $70 billion. Although the original instructions in the budget resolution allowed a $70 billion tax cut reconciliation bill, Congressional budget rules limited the size of the tax bill to $60 billion unless the budget cuts were enacted. Keeping the tax cuts within the reconciliation dollar limits is important because such a package can pass with only 51 votes. Tax cuts exceeding the limit require 60 votes. When Congress considered earlier versions of the tax bill last year, only about $60 billion in tax breaks had the special protections granted by reconciliation (because the budget cuts had not yet been passed.) The House’s passage this week of the $40 billion cuts in spending (S. 1932), allowed the Senate to move forward with the full amount of the tax cuts. In addition, the tax reconciliation bills considered last fall included Katrina-related tax breaks that were subsequently passed as part of other legislation. Eliminating the no-longer-needed Katrina provisions freed up additional money for more tax breaks. Observers expect a $70 billion bill to emerge from conference.
Capital gains and dividend rate cuts. The centerpiece of the House tax reconciliation bill would extend for two years a tax break for those who claim capital gains and dividends – which overwhelmingly benefit the wealthy. Even though the provision extends the rate cut for just two years, the federal government would lose $23 billion in revenue over five years and as much as $30 billion over ten years. Households with more than $1 million in income would get 45 percent of the benefits from the capital gains and dividend breaks.
The Senate tax reconciliation bill does not include the capital gains and dividend provisions. When the Senate first considered the bill, Sen. Olympia Snowe (R-ME) threatened to oppose it if the capital gains and dividends pieces were included. It is likely conference negotiators will continue to push for capital gains and dividend rate cuts in the final conference report and will look for ways to include the tax break.
Alternative Minimum Tax. The Senate tax bill includes provisions exempting certain households from paying the alternative minimum tax (AMT). The AMT provisions primarily benefit households with income between $100,000 to $500,000. Less than one percent of the benefits of AMT exemption would go to households with income of more than $500,000. Those same households, in contrast, would get 55 percent of the benefits of the capital gains and dividend provisions. Last December the House passed a separate AMT bill that was not part of tax reconciliation.
During the debate Sen. George Voinovich (R-OH) directly connected the budget cuts passed in the House and new tax breaks being considered and vowed to oppose legislation (such as the tax bill) that worsened the deficit picture. Sen. Kent Conrad (D-ND) offered a substitute bill that was paid for by closing abusive tax shelters and other loopholes. The amendment failed by a margin of 44 to 52.