On May 15, the Senate approved, 51-49, the Jobs Growth and Tax Reconciliation Act (S. 1054). Three Democrats—Sens. Evan Bayh (D-IN), Zell Miller (D-GA) and Ben Nelson (D-NE)—supported the plan, while three Republicans—Sens. Lincoln Chafee (R-RI), John McCain (R-AZ) and Olympia Snowe (R-ME)—opposed it. The $350 billion tax cut package now heads to conference, where tax writers will attempt to reconcile the Senate package with the $550 billion measure passed May 9 by the House (see The Source, 5/9/03). Under the terms spelled out in the FY2004 budget resolution (H. Con. Res. 95), Senate conferees would be allowed to produce a bill as large as the House plan; however, Finance Committee Chair Charles Grassley (R-IA) and Republican leaders have promised moderate Senators that the package would not top $350 billion.
Senate action was delayed several days after the Senate parliamentarian ruled that the committee should have considered a bill that had been filed after completion of the budget resolution. S. 2 was filed before the budget resolution was passed, which technically prevented it from being considered under the rules that protect reconciliation bills from filibusters. Democrats refused to allow the error to be corrected on the floor, and the measure was sent back to the Finance Committee on May 13. The new bill (S. 1054) was approved 12-9, with Sen. Blanche Lincoln (D-AR) joining the Republicans in support.
The Senate bill would lower the highest income tax bracket from 38 percent to 35 percent, with other brackets lowered to 33, 28, and 25 percent, effective retroactively to January 1, 2003. The 10 percent tax bracket also would be expanded. The House bill includes the same provisions, but the expansion of the 10 percent tax bracket would expire in 2006.
S. 1054 also would expand the 15 percent tax bracket and standard deduction for married couples to twice that of single taxpayers for 2003 and 2004 only. Under the House plan, the increase in the standard deduction and the 15 percent tax bracket would expire in 2006.
Republicans brokered a deal on state aid with moderate Senators that allowed for adoption of the dividend tax cut amendment. Under the Senate plan, 50 percent of dividends would be excluded from taxes in 2003, and 100 percent in 2004-2006; the benefit would expire in 2007.
The House version would reduce taxes on both dividends and capital gains to 5 percent for taxpayers in the 10 and 15 percent tax brackets and to 15 percent for other taxpayers. The dividend amendment was adopted 51-50, with Vice President Dick Cheney casting the tie-breaking vote.
Sens. Ben Nelson (D-NE) and Susan Collins (R-ME) cosponsored an amendment that would promise $20 billion in aid to cash-strapped states, half of which would go toward increasing the federal share of Medicaid costs. The other half would be split between direct aid to state and local governments, with $6 billion going to states, and $4 billion going to cities and counties. Sen. Nelson’s vote for the tax cut and dividend amendment, as well as the votes of other moderate Senators, were contingent upon passage of the state aid amendment, which was easily adopted, 95-3. An amendment offered by Sen. Patty Murray (D-WA) that would have expanded the state aid package to $40 billion was rejected, 47-52.
“This [aid] won’t relieve them of the obligation to make painful budget choices, but it will recognize the difficult financial strains under which they are operating,” said Sen. Collins, urging adoption of the amendment.
Both the House and the White House are opposed to the $20 billion in state aid, but Sen. Grassley has said that the conference report must include state aid for it to be adopted.
Under the Senate bill, the child tax credit would increase from $600 to $1,000 in 2003. The House bill also includes the provision, but it would expire in 2006. Sen. Kent Conrad (D-ND) offered an amendment that would have made the child tax credit retroactive to the beginning of 2002, with the cost offset by delaying part of the reduction in the top marginal rate by 18 months. The amendment was rejected, 49-51.
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Prior to passage, the Senate defeated, 46-54, a Democratic substitute, offered by Sen. Tom Daschle (D-SD), that would have provided $40 billion in state aid, eliminated the marriage tax penalty, increased the child tax credit to $700 in 2003 and $800 in 2004, and created a 50 percent tax credit for small business health care expenses, among other provisions.
Three other substitute amendments, offered by Sens. Mark Dayton (D-MN), Mary Landrieu (D-LA), and Bob Graham (D-FL), also were defeated on party line votes.
The conference committee will meet next week to hash out differences between the House and Senate bills.
