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Clinton and Congress Set Up Task Force on Tax Issues

Tuesday, February 11, 1997

OnLine

President Clinton and congressional leaders met Feb. 11 and agreed to hold future discussions on tax policy issues and four other areas in which they believe consensus can be reached.

The task force on tax issues will include House Ways and Means Committee Chairman Bill Archer, R-Texas, Senate Finance Committee Chairman Bill Roth, R-Del., and Treasury Secretary Robert Rubin.

The task force will operate along side the regular budget process and Congress will begin work in April on a budget resolution, as usual. Relying on such a timetable means that the tax-writing committees probably will not act on tax legislation until after the April 15 deadline for enactment of the budget resolution. Many effective dates in the President’s tax proposal, unveiled Feb. 6, are tied to legislative action by the tax-writing panels.

"I thought that we had a very, very positive meeting," House Speaker Newt Gingrich, R-Ga., told reporters. "We are trying to find a way to take the least number of pot shots at each other," Lott added, saying that there is "commonality" on cutting capital gains taxes and on estate taxes.

No precise timetable for the task force meeting has been established.

GOP concerned about administration estimates

Archer and other Republicans expressed concern at a Feb. 11 House Ways and Means Committee hearing that the President’s budget proposal may not produce a balanced budget by 2002. They also questioned whether it will cut taxes, as promised.

If the Congressional Budget Office does not find the Clinton budget to be in balance by 2002, will Treasury "go back and revise your budget and submit another one to us that will be scored in balance?" Archer asked.

CBO is expected to complete its estimate of the Clinton proposal in the next several days. The administration’s estimators at the Office of Management and Budget project the budget will be in balance by 2002, if the Clinton proposals are enacted.

The Clinton balanced-budget proposal, unveiled Feb. 6, proposes a net tax cut of about $20 billion over the fiscal 1998 through 2002 period. If it appears the balanced budget target is not going to be met, an automatic trigger would eliminate some tax cuts and impose additional spending cuts.

Similarly, Rep. Jim McCrery, R-La., questioned whether the CBO estimate will show a balanced budget only if the triggers reducing the tax cuts and cutting spending are in place.

"It is possible that, in fact we could have a tax increase, instead of a decrease," McCrery warned, stating that if the trigger activates it will eliminate the proposed tax cuts.

Rubin assured the committee that the administration estimates about the budget are correct, and added that the trigger gives the President some margin of error.

Specific proposals

Several committee members asked Rubin about the proposal to replace the foreign sales source rule with an activity-based rule. Rep. Sander Levin, D-Mich., warned that the proposal could result in jobs being shifted overseas. Reps. Jennifer Dunn, R-Wash., and John Ensign, R-Nev., also asked about the proposal.

The current law was put in to prevent double taxation for firms doing business in the U.S., Rubin responded. Tax treaties with the nation’s trading partners have eliminated much of the double taxation threat, so the existing provision is in essence a subsidy that should be eliminated, the Treasury Secretary said.

Another issue discussed during the hearing was the research and experimentation tax credit, which Rep. Sam Johnson, R-Texas, said should be made permanent. Treasury supports the R&D credit, Rubin said, but the resources do not exist for such a policy. The President’s budget would extend it for one year.

Rep. Pete Stark, D-Calif., and other members asked about the possibility of making the proposed tax credits for children fully refundable. Similarly, Rep. William Coyne, D-Pa., asked about making the proposed education credits refundable.

BLS Head Agrees CPI Should Be Revised: The commissioner of the agency responsible for preparing the nation’s key inflation index agrees with critics that it overstates the true cost of living. "Our statistics have limits," said Bureau of Labor Statistics Commissioner Katherine Abraham during a Senate Finance Committee hearing.

Abraham supported the consensus that has emerged regarding the existence of an upward bias of 0.5 to 1.5 percentage points in the CPI. Citing problems of accounting for quality change, new products, and the substitution factor, Abraham suggested that a budget increase for the BLS for the computation of the CPI could minimize the effect these factors have on the index.

Sen. John Breaux, D-La., expressed concern over using the CPI as an indicator of the cost of living. Stating that the CPI was not intended to be used as a cost of living indicator, Breaux questioned how it is that a set of statistics is being used to do something it isn’t supposed to. Abraham replied by stating that the BLS "operates in a cost of living framework in producing the CPI," and that a lack of timely information stops a true monthly estimate of the cost of living, but allows for completion of an accurate annual cost of living assessment. The CPI is the best alternative to a true cost of living estimate, which is non-existent on a monthly basis due to limits on data. Substitution bias and availability of new products, which are necessary to know in order to calculate a true cost of living estimate, are factors that are unavailable to the BLS on a monthly basis.