On May 17, the Senate began consideration of a bipartisan $1.35 trillion, 11-year tax cut bill (H.R. 1836). Sponsored by Senate Finance Committee Chair Charles Grassley (R-IA) and Ranking Democrat Max Baucus (D-MT), the bill contains many of the elements outlined in the President’s tax plan. After a day-long mark-up on May 15, the Senate Finance Committee approved the tax package, 14-6.
The Senate bill would double the child tax credit from $500 to $1,000 over a period of 10 years: the child tax credit would increase to $600 this year, $700 in 2004, $800 in 2007, $900 in 2010 and $1,000 by 2011. The legislation also includes a new provision that would allow certain low-income individuals to claim a portion of the child tax credit, which they cannot currently claim because they have no income tax liability.
The bill would gradually lower the top tax rate from 39.6 percent to 36 percent by 2007, and would set a new tax bracket of 10 percent for the first $6,000 for single taxpayers and $12,000 for married couples to start immediately in 2001. The lower tax rates would be reflected in reduced amounts withheld from workers’ paychecks.
Due to a glitch in the tax code, many married couples pay higher income taxes than they would if they were single or filing separately. The Senate tax cut package would take some steps to correct the marriage tax penalty by lowering tax rates for married couples and doubling their standard deductions, provisions that would not go into effect until 2006.
The bill also includes numerous items sought by individual Senators, including a deduction for college tuition, a retirement savings package, and a gradual repeal of the estate tax by 2011.
Debate on the Senate floor was heated at times, with Republicans calling for further reductions of the top tax rate, and Democrats criticizing the bill for its lack of fairness to lower-income Americans.
Sen. Grassley warned his fellow Republicans that pushing the top tax rate lower would upset the delicate compromise worked out with moderate Democrats whose votes are crucial in the Senate. “I would ask my colleagues, particularly on the Republican side to think in terms, not that they like everything that’s in here, but could they do better,” he said.
Sen. Baucus concurred, “We must have a balanced compromise, we must reach some agreement because we can’t all have our way.”
Many Senate Democrats opposed the tax plan, calling it “unfair” and “misleading” to the American people. “This tax cut is part of a budget proposal that has concealed more than it has revealed,” criticized Sen. Kent Conrad (D-ND). “I mean by that, whole chunks of Federal spending that we all know are going to occur have been left out,” he continued, adding that “another argument against the bill is that too much of the tax cut goes to people at the upper end of the income scale.”
The Senate rejected two amendments that would have accelerated relief from the marriage tax penalty. Sen. Conrad offered the first amendment that would have made marriage tax penalty relief available to couples in 2002 rather than in 2006. To offset the cost of the amendment, the reduction in the top tax rates would have been delayed. The amendment was defeated, 44-56.
Speaking in support of the amendment, Sen. Debbie Stabenow (D-MI) said, “At a time when we are saying an important value for our country is to be supporting marriage and family, and to make sure we are giving every opportunity for couples to succeed and families to succeed, it is crazy in my opinion, and makes no sense whatsoever, to have this provision in place. It should have been done away with a long time ago.”
Sen. Kay Bailey Hutchison (R-TX) offered an amendment that also would have made marriage tax penalty relief available to couples in 2002. The amendment, which would have been paid for by delaying deductions for education expenses, was defeated, 27-73.
“I have been working on marriage penalty relief for the last four years,” said Sen. Hutchison. “We have passed it in the Senate twice, but it was vetoed by President Clinton,” she said, adding that, “Today we have a chance to finally begin the process of relieving the marriage penalty.”
Another amendment by Sen. Charles Schumer (D-NY) that would have expanded the deductibility of college tuition costs also was defeated, 43-55.
The Senate hopes to finalize consideration of the bill on May 21.
The Senate floor debate mirrored the Senate Finance Committee’s day-long mark-up. Democratic efforts to change the bill were defeated, except for one technical proposal. Four moderate Democrats crossed party lines to approve the final bill: Sens. Baucus, John Breaux (D-LA), Blanche Lincoln (D-AK), and Robert Torricelli (D-NJ).
Democrats on the committee complained that the bill lacked fairness and was too costly. “This bill spends too much and saves too little,” Sen. Jay Rockefeller (D-WV) told his colleagues. “It is the evisceration of the America we want; it’s a grave mistake that will take a long time to come out of.”
Expressing support for the bill, Sen. Olympia Snowe (R-ME) told her colleagues, “We could have 20 different versions but we had to make principled compromises that are good for the American people.” Citing provisions in the bill such as the refundability of the child tax credit, she said, “We are taking the first steps to make sure the weight of this bill in totality will benefit lower-income families.”
The House passed a tax reconciliation bill (H.R. 1836) on May 16 by a vote of 230-197. The bill would make across-the-board tax cuts and reduce the top tax rate from 39.6 percent to 33 percent at a cost of $958.2 billion over 10 years.
The bill is identical to H.R. 3, which the House passed on March 8 by a vote of 230-198 (see The Source, 3/9/02, p. 1). Due to a new Senate rule that requires tax cut bills to be specifically deemed reconciliation bills, the House gave H.R. 3 a new number, H.R. 1836, and a new title, Economic Growth and Tax Relief Reconciliation. With the Senate poised to pass the bill on May 21, Republicans aim to approve the conference report next week in order to present the measure to the President before the Memorial Day recess.