Some of the President’s tax-related proposals were discussed during a hearing held by the House Ways and Means Committee on March 21, one day before the same committee marked up its second tax bill this session (see related story on p. 1).
Marriage Tax Penalty
Sen. Kay Bailey Hutchison (R-TX) told the committee that marriage tax penalty relief is urgent. “The Treasury Department estimates that 48 percent of married couples pay a marriage penalty,” she said, adding: “According to a study by the Congressional Budget Office, the average penalty paid is roughly $1,400. Sen. Hutchison backed an approach similar to that reflected in H.R. 6, the bill considered by the committee on March 22.
Rep. Jerry Weller (R-IL), a member of the committee, also testified in favor of H.R. 6, saying its approach to the marriage tax penalty “is exactly the same as the bill the House and the Senate sent to President Clinton last year.” That measure (H.R. 4810) was vetoed (see The Source, 8/6/99, p. 1; 9/15/00, p. 1).
Chuck Donovan of the Family Research Council expressed concern that the marriage tax penalty discourages couples from getting married. “As the institution ordained by the Creator for the begetting and raising of children, marriage has had special protection within the law and culture; it is indispensable to civilized life,” he told the committee.
Wendell Primus of the Center on Budget and Policy Priorities cited research showing that 40 to 50 percent of the births to unwed mothers in America involve babies who “come home to a two-parent but unwed family.” Although “conservatives and liberals have been troubled by these trends for many years,” he said, “research suggests that marriage penalties and bonuses in the tax code have little effect on marriage rates at any income level.”
All of the witnesses spoke in favor of the approach taken in H.R. 6, rather than the President’s plan, to provide an additional deduction for the lower earner of a jointly-filing couple. “Giving a tax cut only to two-earner couples would send the message that the government sees no value in the homemaker’s work at home, and role of a ‘nonworking’ wife and mother is less socially beneficial than paid employment,” said Mr. Donovan.
Another bill (H.R. 8) to end the estate tax, as well as gift taxes and generation-skipping taxes, also was vetoed last year (see The Source, 7/14/00, p. 2; 9/8/00, p. 1). Along with ending the marriage tax penalty, expanding the dependent child care tax credit, and trimming the number and scope of income tax brackets, the President has named phase-out of the estate tax as one of his top tax policy priorities.
Referring to the estate tax as the “death tax,” Maria Coakley David of the National Federation of Independent Business said it “taxes the same assets twice” because business owners “pay income taxes, employment taxes, property taxes, local taxes, Social Security taxes, and excise taxes just to name a few.” However, if an entrepreneur wishes to bequeath a business to family members, she said, “the death tax will take away in after-tax dollars much of what has been built.” Additionally, many business owners hold their assets as equipment or inventory, she said, adding: “If they do not have cash assets available to pay the death tax, they will be forced to sell critical parts of the business outright in order to cover the tax liabilities.”
Several business owners echoed Ms. David’s views, applauding the President’s proposal to phase-out the estate tax.
However, attorney Lauren Detzel testified that repealing the estate tax would greatly reduce federal revenues. “While the White House administration claims that the proposed phase-out of the estate tax would cost the federal government $236 billion over the next ten years, it will undoubtedly cost the United States government much more in lost revenue,” she said.
Instead of full repeal, Ms. Detzel said, the estate tax “should be made not to apply to the estates of owners of small family farms and other family businesses.” She described the estate tax as “one of the most important parts” of the tax code.