House and Senate negotiators have been unable to reach a conference agreement on a budget plan for fiscal year 2005. The main sticking point is the insistence by key Senators that the budget deal include a rule that would require Congress to pay for new tax cuts and new spending by either cutting elsewhere in the budget or by raising revenues. These pay-as-you-go rules were approved by a 51 to 48 margin in an amendment sponsored by Senator Russ Feingold (D-WI). Republican Senators John McCain (AZ), Lincoln Chafee (RI), Susan Collins (ME), and Olympia Snowe (ME) joined with all Democrats except for Zell Miller (GA) to vote in favor of the pay-as-you go amendment.The House resolution does not include any pay-as-you-go rule, but separately the House Budget Committee approved a bill that includes a number of changes to the budget process, including a version of pay-as-you-go that would apply the rules only to new spending – not new tax cuts (HR 3973). This one-sided pay-as-you-go is the same approach taken by the President in his proposed budget and would give Congress deep incentives to pass more tax cuts and disincentives to increase spending for programs that serve low-income families. House leadership has promised to bring that bill to the floor before Memorial Day recess.

To break the stalemate, Republican leadership must either persuade one of the four Republicans who voted for the Feingold amendment to change position, or persuade a Democrat to abandon support. Senators Chaffee and McCain have already said they will veto a conference report if it does not have the Senate version of pay-as-you-go. In particular, Republican leadership has targeted Senators Collins and Ben Nelson (D-NE) as legislators who may be willing to compromise by accepting a pay-as-you-go rule that will exempt certain tax cuts.

Another issue plaguing negotiators is whether the conference agreement will require cuts to entitlement programs. The House budget resolution would require $2.2 billion in cuts to Medicaid. Under the House resolution the Ways and Means Committee must find $8 billion in cuts or tax savings and two other committees must strip $2 billion from entitlement programs in their jurisdiction. The Senate rejected similar required cuts to Medicaid and the Earned Income Tax Credit totaling $14 billion from its budget resolution.

Meanwhile, Majority Leader Tom DeLay (R-TX) says he plans to send four popular tax cut bills to the House floor in the next few weeks, despite the lack of a budget resolution. The four tax cuts on his list are: 1) extension of the marriage penalty relief; 2) extension of the child tax credit of $1,000 (currently set to revert to $700 in 2005); 3) extension of the 10 percent tax bracket for individuals earning up to $7,000 and couples earning up to $14,000 (currently set to revert to $6,000 and $12,000 respectively in 2005); and 4) extension until 2005 of the current exemptions from the alternative minimum tax. The first bill the House plans to take up is marriage penalty relief, which would extend the current standard deduction for married couples (two times the $9,500 standard deduction for single people). Without extension, the deduction would revert to 174 percent of a single taxpayer’s deduction in 2005.

The cost of the four tax cuts together would be about $119 billion – $95 billion for extending for five years the ten percent bracket, the child tax credit and the marriage penalty provisions and $23 billion for the alternative minimum tax exemptions.

To Take Action
CHN is circulating a letter to Senators on the budget conference agreement, asking them to reject a budget that will hurt low-income families. If your organization has not yet signed on and you would like to, please contact Adam Hughes at email ahughes@chn.org or phone 202-223-2532 ext. 27 as soon as possible.

For More Information
Fair Taxes for All: House Budget Resolution Perverts Priorities
Fair Taxes for All: Senate Budget Resolution Skews Priorities
Center on Budget: Certain “Compromises” on Pay-As-You-Go Would Gut Rule

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