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Senate Democrats Sorting Out Budget Position

Thursday, April 24, 1997

OnLine

Senate Democrats expressed disappointment after a meeting with the President when they told him they were unhappy with the direction of the talks to craft an agreement to balance the budget by 2002.

"We are not going to support tax breaks for the wealthy," Senate Budget Committee ranking Democrat Frank Lautenberg, D-N.J., told reporters.

Democrats now appear to be divided over politically sensitive issues, such as tax cuts and Medicare reform. The party’s left wing and its moderate wing do not want to move too far to the right. Many Democrats believe the President must hold true to the party’s traditional ideals and goals.

Another concern among those watching the budget talks is the possible emergence of various coalitions that will make demands and cause large blocks of legislators currently favoring compromise to become inflexible.

For instance, a group of Democratic senators recently wrote the President urging him to hold the line on tax cuts. "The disastrous effect of the 1981 tax cuts is still fresh in our memories, and we are writing to urge you to hold the line on tax cuts as you engage in budget negotiations with congressional Republicans," the group wrote.

The letter was signed by the following Senators: Daniel Akaka, D-Hawaii; Dale Bumpers, D-Ark.; Richard Bryan, D-Nev.; Max Cleland, D-Ga.; Tom Daschle, D-S.D.; Christopher Dodd, D-Conn.; Russ Feingold, D-Wisc.; John Glenn, D-Ohio; Ernest Hollings, D-S.C.; Mary Landrieu, D-La.; Daniel Patrick Moynihan, D-N.Y.; Patty Murray, D-Wash.; Jack Reed, D-R.I.; Harry Reid, D-Nev.; and Charles Robb, D-Va.

On the other side of the political spectrum, a group of conservative senators also have listed certain "fundamental principles" that must be included in a budget deal. A capital gains tax cut, a $500 per child tax credit, and a cut in the estate tax must be included in any deal, the group wrote, as well as a downward adjustment to the Consumer Price Index.

Their letter was signed by the following Senators: John Ashcroft, R-Mo.; Sam Brownback, R-Kan.; Larry Craig, R-Idaho; Lauch Faircloth, R-N.C.; Phil Gramm, R-Texas; Rod Grams, R-Minn.; Jesse Helms, R-N.C.; James Inhofe, R-Okla.; Richard Shelby, R-Ala.; and Robert Smith, R-N.H.

Estate Tax Debate: The partisan bickering over estate tax repeal continued as the Administration backed away from criticism of the GOP’s position.

Deputy Treasury Secretary Lawrence Summers told reporters he "should not have used the term 'selfishness' " earlier this week to characterize the GOP position in the debate over estate taxes.

Congressional Republicans attacked Summers for the language he used. "We would hope that this irresponsible statement by a member of your Administration does not reflect your views on this issue," House GOP leaders wrote the President.

The political fighting over estate tax repeal probably will die down, but such disputes, if they escalate severely, could poison the environment conducive to a bipartisan budget agreement.

House Amtrak Bill Introduced: A bill allocating one half cent per gallon from the federal gasoline tax to a new trust fund for Amtrak was introduced in the House April 24.

The "rail service should be treated the same as other forms of transportation that are important to the entire country, and should have its own dedicated funding source," said the bill’s sponsor, Rep. Michael Castle, R-Del., to reporters.

The half cent tax would revert back to the Highway Trust Fund after five years and would not affect its balance in the interim, according to a press release.

Reps. Benjamin Cardin, D-Md., and Nancy Johnson, R-Conn., are co-sponsors of the bill. Similar legislation was offered by Senate Finance Committee Chairman William Roth, R-Del., and Moynihan.

Oil Firms Could Be Harmed: Senate Finance Committee member John Breaux, D-La., wrote the President warning that two of his revenue-raising proposals -- to replace the foreign source rule and to reform the treatment of dual capacity taxpayers -- would harm the oil industry.

Replacing the sales source rule with an activity-based rule could reduce U.S. companies’ investment return by as much as one-third, Breaux warned. "Clearly, these U.S. companies will not be able to successfully bid for foreign projects against foreign competitors if their cost is one-third higher," he wrote.

The foreign source rule has come under attack from House Ways and Means Committee Chairman Bill Archer, R-Texas, as well as other legislators.

Another proposal that would harm the oil industry would limit the foreign tax credit for businesses operating in countries in which there is no income tax, Breaux said. "The President’s proposal would deprive companies of the funds they should be using to maintain international competitiveness simply because they are doing business a country without a formal tax structure," Breaux wrote.

EITC Initiative Unveiled: The Treasury Department announced initiatives to reduce the amount of non-compliance associated with the earned income tax credit.

New penalties, an expanded certification process, and stepped up enforcement are some of the legislative and administrative initiatives, the Treasury announced.

Conservative legislators have attacked the credit on the grounds that it is too expensive and many of those benefiting from it do not meet eligibility requirements. The Treasury is attempting to improve the credit and respond to its critics.