CHN: Tax Cutting Agenda Moves Forward

Despite the lack of a budget agreement for fiscal year 2005, the House passed two tax cuts in the last two weeks and House leadership promises to bring to the floor two more tax cuts before the Memorial Day recess.
Yesterday, the House agreed by a vote of 333 to 89 to extend until 2005 the current exemptions from the alternative minimum tax. The bill (HR 4227) keeps certain middle-class families from paying the alternative minimum tax (AMT). The $17.8 billion cost of the AMT bill was not offset and the House rejected a substitute offered by Richard Neal (D-MA) that provided slightly different exemptions and would have been paid for by requiring changes in corporate bookkeeping practices.

Last week the House passed HR 4181, a bill to extend marriage penalty relief. The $105 billion bill, which is not paid for, will make permanent three popular tax breaks for couples that will expire if Congress does not take action. The bill also continues the faster full implementation of two of those tax cuts, largely benefiting middle- and upper- income married couples. The relief targeted for low-income couples still increases very gradually. Their help was not speeded up in 2003 when the other provisions were accelerated, and HR 4181 does nothing to change that.

First, HR 4181 would continue an income tax rate reduction for some married couples (according to the Urban-Brookings Tax Policy Center and the Center on Budget and Policy Priorities, no couples with income of less than $40,000 benefit from this provision). Second, the bill would continue to allow married couples to claim a standard deduction at twice the rate for single taxpayers. (If Congress doesn’t take action, the lower rates and standard deduction for married couples will go up next year and will expire in 2011. Third, the bill would make permanent marriage penalty relief for about three million low-income couples who are eligible for the Earned Income Tax Credit.

The original language in the marriage penalty bill left out relief for low-income couples by allowing their EITC marriage penalty relief to expire in 2011. Married couples with incomes below $40,000 (about three in ten of all couples) will receive only eight percent of the total cost of the marriage penalty relief in 2010, when they are fully in place. Pressure from advocates and Democrats in the House persuaded leadership to amend the bill to include low-income families.

According to Majority Leader Tom DeLay (R-TX), next up is a bill to extend the 10 percent tax bracket for the first $7,000 of income for individuals or $14,000 for couples (currently set to revert to $6,000 and $12,000 respectively in 2005), expected to go to the floor next week. The following week the House will take up a bill that extends the child tax credit of $1,000 (currently set to revert to $700 in 2005).

Neither the AMT nor the marriage penalty bill is paid for and it is expected the next two cuts the House will consider will not be paid for either. Most of the benefits of these tax cuts accrue to the middle class. But because none of the tax cuts are paid for by equitable increases in revenue, the Fair Taxes for All Coalition and other advocates for low-income individuals continue to oppose them. The tax cuts of 2001 and 2003 and subsequent legislation to make those cuts permanent have drained the federal treasury and jeopardized the ability of the federal government to pay for needed services for low-income families.

Senator Charles Grassley (R-IA), chairman of the Finance Committee, has said he would not deal with each House bill separately, but will wrap up the bills in a broader tax package that will just extend the tax cuts expiring for just one year.

Fair Taxes for All: Letter to Congress on the AMT Tax
Fair Taxes for All: House Marriage Tax Bill Adds $105 Billion to Deficit
Center on Budget and Policy Priorities: AMT Bill Offers Large Dose of Budget Gimmickry
Center on Budget and Policy Priorities: House Marriage Tax Bill Swells Deficits and Continues Less Favorable Treatment of Low-Income Couples

tax policy