THE LAST THREE YEARS have been good for taxpayers, as Congress and the president worked together to reduce levies on three separate occasions. Now it’s year four of the Bush administration and, while the deficit balloons and Democrats play class politics in the presidential election, the general debate has shifted to whether tax cuts should be reversed. Republicans should take this as an invitation to extend the president’s tax cuts and perhaps try to make them permanent.
The status quo is such that even in the Republican-controlled Congress, the debate concerns only stopping tax increases, rather than cutting rates any further. The news gets worse for workers: This year, taxes will actually go up if several popular provisions that expire at the end of this year are not extended.
True, a tax increase with Republicans in control of all the levers of power is about as likely as Bobby Knight becoming the Anger Management Association’s Man of the Year. But Democrats will work tirelessly to deny Republicans victories on any legislative initiative, particularly if it means building on past tax-cut wins. And such a showdown would actually benefit Republicans.
GOP leaders have two options for trying to pass tax legislation this year, neither of which is perfect. One is through the budget process, which reaches the Senate floor this week and the House floor next week; the other calls for passing the expiring tax provisions, separately or as a package, outside the budget debate.
The four popular tax provisions that expire this year are the child tax credit, relief from the marriage penalty, alternative minimum tax relief for individuals, and a broadened lowest bracket for low-income taxpayers. If these expire, a family of four earning $40,000 will have a $915 tax increase next year.
GOP leaders in the House have the votes and flexibility to extend these measures as part of a comprehensive budget package or even as four separate bills. House Republicans, over the next few months, will likely do both, forcing Democrats to cast multiple votes supporting tax increases. Republicans in the Senate may also choose a two-pronged approach, but for different reasons.
In the Senate, any one member can filibuster, bogging things down to block passage of a stand-alone tax bill. So Republicans will use the so-called reconciliation process, generated by passage of a congressional budget resolution. The “reconciliation bill,” which Congress would take up sometime this summer if lawmakers agree on a budget resolution this month, receives special procedural protections, including time limits on debate. Also, it’s “filibuster proof,” meaning it can pass with only 51 votes. This is how the Senate passed the last two major tax bills.
But here’s the catch. Any legislation passed in this fashion lasts only as long as the period specified in the budget resolution. So, because Congress will pass a five-year budget, any tax changes passed as part of it can only be extended for five years. That’s one reason tax changes made under this process are expiring in the first place and why no tax provision can be made permanent using this procedure.
The other option is to bring these expiring tax provisions up, separately or as a package, outside the reconciliation process. This way the tax cuts could become permanent. Republicans in the House have the votes to pass such extensions. Republicans in the Senate do not.
Trying to pass a tax bill in the Senate, even if it included popular items like the child tax credit or marriage penalty reforms, would be a Herculean task. Many Democrats, including presidential candidate and senator John Kerry, say they support extending these popular provisions. But there’s no doubt their political instincts to deny Republicans a “win” on taxes will overwhelm the need to extend middle-class tax relief.
It currently looks like Republican senators will exercise both procedural options at their disposal. First, they will use the budget resolution to generate a reconciliation bill, extending the provisions that expire at the end of 2004. Later, the Senate Finance Committee will produce a separate bill. One GOP leadership aide predicts Democrats will “amend this bill to death or simply object to its consideration.” Either way, Democrats can be exposed as trying to pave the way for taxes to be raised on middle-class Americans.
Given the rules of the Senate, passing a bill that would make the expiring 2004 tax provisions or any others permanent is not in the cards this year. All the same, Republicans will be in a position to pass legislation to avoid a tax increase and put Democrats in the hot seat. It’s not everything the Republican heart desires, but it’s a lot.
Gary J. Andres, a principal at the Dutko Group, writes a weekly column in the Washington Times.
