CHN: Tax Cut Legislation Moves Through GOP-Controlled Congress
House and Senate Bills Reap Benefits on Nation’s Wealthy
The Republican-led Congress made strides this week in its push to pass legislation granting billions of dollars in tax breaks to America’s richest citizens. The House approved a $550 billion tax package, while the Senate Finance Committee agreed to a $350 billion plan. Although GOP leaders were forced to scale back the $726 billion plan President Bush proposed, the House and Senate bills contain many of the administration’s tax cut priorities.
On May 9, the House approved a $550 billion tax plan (HR 2) that would, like President Bush’s proposal, cut taxes on dividends and capital gains, speed up the tax rate reductions included in the $1.35 trillion tax cut enacted in 2001, and provide other business tax breaks. The bill would also increase the child tax credit and eliminate a provision in the tax code that leads some married couples to pay higher taxes than they would if they filed as singles.
Millionaires are poised to reap substantial gains from the House plan, while middle and lower-income families would benefit little if at all. According to the Center on Budget and Policy Priorities, individuals earning more than $1 million this year would receive, on average, approximately $93,500 under the plan. By contrast, middle-income taxpayers would get tax cuts averaging about $217. Over the course of ten years, the House package would reward millionaires with $139 billion in tax cuts – about the same amount of tax cuts going to the entire bottom 89 percent of households taken together.
Not only is the House bill skewed toward the wealthy, critics argue that it contains budgetary gimmicks designed to mask its true costs. According to the Fair Taxes for All Coalition, the full ten-year cost of the House plan exceeds $1 trillion. Opponents of the measure warn that it will further worsen the nation’s deficits, undermining the long-term solvency of key domestic programs including Social Security and Medicare.
GOP House leaders refused to let their Democratic counterparts offer a $177 billion substitute to HR 2 that would have provided tax cuts for small businesses, married couples, low-income taxpayers, and families with children. In addition, Democrats sought to extend unemployment benefits by 26 weeks. At 6 percent, the unemployment rate is the highest it’s been in almost a decade.
The Democratic substitute would have also sent $44 billion in aid to the financially strapped states. Facing their worst fiscal crises in half a century, states have resorted to cutting social programs to make up budget shortfalls. The National Conference of State Legislatures reports that Medicaid spending, for example, has been cut in 13 states, while higher education spending has been reduced in 12 states, and K-12 in nine. Twenty-nine states have implemented across-the-board budget cuts.
In the closely divided Senate, a degree of compromise was needed to move tax legislation forward. At the insistence of Democrats and moderate Republicans in that chamber, the Senate Finance Committee’s version of the tax bill (S 2) contains $20 billion in aid to the states. Pressure from Republican moderates – especially Olympia Snowe (R-ME) – to limit the overall costs of the package to $350 billion also forced Finance Committee Chair Charles Grassley (R-IA) to pair down the centerpiece of the President’s proposal, the elimination of taxes on corporate dividends.
Under the Finance Committee plan, all taxpayers could exclude $500 in dividends from their taxes. Ten percent of dividends above that amount would also qualify for the exemption, and the exclusion would rise to 20 percent beginning in 2009. In all, the bill would provide $81 billion in dividend income tax breaks over the next decade – far less than the amount sought by President Bush’s tax cut proposal, and less than what is included in the House version of the bill.
In addition, the Senate bill would, like its House counterpart, speed up the tax rate reductions enacted in 2001, temporarily boost the child tax credit, and eliminate the marriage tax penalty. The Finance Committee passed its bill on May 8 by a 12-9 vote. Senator Blanche Lincoln (AK) was the only Democrat on the panel to vote for the bill.
The Finance Committee bill moves to the Senate floor for a vote next week, where a contentious debate is expected. GOP leaders in the House and Senate are hoping to hammer out a conference agreement on tax legislation before Congress adjourns for its Memorial Day recess May 23.
Anti-poverty advocates will continue their vehement opposition to massive tax breaks for the wealthy and demand, instead, that Congress pass legislation to stimulate the sagging economy, assist low-income families and the unemployed, and provide financial aid to the struggling states. A mass picket and rally to voice these demands is scheduled for May 14 in front of the Department of Labor.