Senate Waits on Budget Resolution
Not waiting for the Senate to complete work on the budget resolution, the GOP-controlled House is continuing to press forward with its tax cut agenda. While the budget resolution paves the way for subsequent tax and appropriations bills, especially in the Senate where legislation protected by the resolution is not subject to filibuster, the resolution does not itself carry the force of law. Subsequent legislation is necessary to actually enact the tax cuts and spending targets contained in the budget plan.

Putting dessert ahead of the vegetables, the House has jumped ahead and passed several key components of its overall tax cut package. On March 8, the House passed a $958 billion, ten year income tax rate reduction bill (H.R. 3). On March 29, the House passed a $399 billion package of tax cuts (H.R. 6) addressing the so-called marriage penalty, doubling the child tax credit to $1000, and making it partially refundable. Later that same day the House Ways and Means Committee adopted a $192 billion bill (H.R. 8) that would slowly phase out the estate tax, repealing it completely in 2011. That bill is expected to be considered on the House floor in the coming week. The House may take up a fourth tax bill after the Easter recess that is expected to contain an assortment of other tax changes worth up to $200 billion over ten years.

The child tax credit and marriage penalty relief bill (H.R. 6), the most recent tax legislation considered on the House floor, passed by a vote of 282-144 and garnered the support of 64 Democrats. The bill:

Doubles the Child Tax Credit and Makes It Partially Refundable: The bill increases the existing child tax credit from $500 to $1,000 per child and applies the credit to the Alternative Minimum Tax (AMT), making it available to upper income taxpayers affected by this tax. The change is phased in over six years, starting with a $100 retroactive increase that becomes effective last January 1. The bill also makes the child credit refundable for tax payers whose payroll taxes (Social Security and Medicare) exceed their Earned Income Tax Credit, if any. The total package of child tax credit changes accounts for $175.9 billion of the bill’s overall $399 billion ten year price tag.

Reduces the Marriage Penalty: According to a 1997 Congressional Budget Office study, roughly 21 million married couples pay more in taxes than they would if they were single. Even more married couples (25 million), however, pay less in taxes than they would if they were single. Nevertheless, tax cut supporters have argued that any marriage penalty should be eliminated. The House-passed bill includes several provisions to address the penalty that, combined, are worth $223 billion over ten years. The bill increases the standard deduction for married taxpayers to twice that of those who are single (at a cost of $60.3 billion over ten years). It also expands the 15 percent tax bracket for married taxpayers to twice that of those who are single ($150 billion). Finally, it makes the formula used to calculate the Earned Income Tax Credit (EITC) slightly more generous for married couples ($12.9 billion).

The estate tax bill (H.R. 8) expected on the House floor in the coming week was passed by the House Ways and Means Committee on March 29 on a largely party-line vote of 24-14. House Ways and Means Chairman Bill Thomas (R-CA) has kept its ten year price tag artificially low ($192.8 billion) by phasing out the tax very slowly and repealing it only in the last year, 2011. A recent study by the Joint Tax Committee placed the true cost of repeal at $662.2 billion over ten years. After the tax is repealed, capital gains taxes become applicable to inherited assets that are subsequently sold. Under current law, capital gains taxes for such assets are based on their value at the time of inheritance, rather than their original purchase price. This change will offset some of the tax revenues lost by eliminating the estate tax.

The estate tax, or “death tax” as it is termed by its opponents, is only paid by the top two percent of income earners. It is currently only assessed on estates worth $675,000 or more, a threshold that is already scheduled to rise to $1 million by 2006.

The Senate is not expected to consider any of the House tax bills until after the Easter recess at the earliest. At that time the House bills are expected to be rolled into one or two larger bills before consideration on the Senate floor.

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