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Clinton Medicare Plan Boosts Chances for Tax and Budget Deal, House Leaders Say

Wednesday, January 22, 1997

OnLine

Optimism for a tax and budget agreement is growing on Capitol Hill after President Clinton late Tuesday outlined his proposed Medicare savings plan for the FY1998 budget.

The President has proposed $138 billion in Medicare savings over the next six years, a plan that House leaders welcomed with almost giddy delight. "The fact that he has unilaterally moved halfway in our direction I think is very, very positive for us this year," House Ways and Means Committee Chairman Bill Archer, R-Texas, told reporters.

"This gives us good hope, I think, and I think Chairman Archer would agree with me, that we could reach a budget agreement we believe sooner, rather than later, as a result of the President being willing to come forward, and as he said, move halfway," said House Budget Committee Chairman John Kasich, R-Ohio.

News of the President’s Medicare proposal broke at the same time GOP Senate Republicans introduced their package of tax cuts estimated to cost $193.4 billion for the six-year period 1997 through 2002. The six-year plan originally was estimated to cost $172.5 billion, but last minute changes expanding the IRA proposals caused the size of the package to grow significantly.

Senate Minority Leader Tom Daschle, D-S.D., Wednesday defended his own tax-cut package, which he estimated would cost about $90 billion over the six-year period. "The tax cut for certain families is important because it is a way to assist them in meeting other objectives," Daschle told reporters. Though Daschle has said he thinks the GOP tax cut is too large, he expressed a willingness to work with Senate Republicans to find a middle ground.

"I suggest that we continue the negotiations, not draw any lines in the sand, not dig in, but express a willingness to look at opportunities where there is ample overlap, and I think there are those opportunities this year," Daschle said. In particular, Daschle pointed to opportunities in both Senate Republican and Democratic tax bills that would provide estate tax relief.

Though much work remains, the Medicare proposal together with the fact that both parties are starting with the premise that there should be a balanced budget by the year 2002 with at least $90 billion in tax cuts is a significant departure from the beginning of the contentious budget debate during the last Congress. Many roadblocks remain, however, and members are just at the beginning of the journey, as Senate Budget Committee Chairman Pete Domenici, R-N.M., made clear Tuesday. "All of these kinds of [tax cut] numbers are premature," Domenici told reporters. "We have got to do a balanced budget and then see what that accommodates."

Senators Propose Bill To Change IRS’ Farm Deferred Payment Policy: A bipartisan group of 54 senators joined Senate Finance Committee member Charles Grassley, R-Iowa in introducing legislation (S.181) to reverse an Internal Revenue Service policy that limits farmers’ use of deferred payments contracts.

Under a recent IRS Technical Advice Memorandum (TAM), deferred payment contracts that farmers often use to sell their commodities are considered installment sales that have an ascertainable value, requiring the farmer to add back this deferred amount as income in computing the alternative minimum tax (AMT) in the tax year the contract was entered into between the two parties. This means farmers often are required to pay tax one year on income they will not receive until a subsequent year.

Among the senators cosponsoring Grassley’s bill are Daschle and Senate Majority Leader Trent Lott, R-Miss., and Senate Finance Committee members John Breaux, D-La.; Kent Conrad, D-N.D.; Phil Gramm, R-Texas; Orrin Hatch, R-Utah; Bob Kerrey, D-Neb.; Carol Moseley-Braun, D-Ill.; and Don Nickles, R-Okla. Backing by these senators is a good indication the bill to end the IRS policy will receive Senate attention this Congress.

Treasury Secretary Robert Rubin said Wednesday the IRS is correctly interpreting current law but expressed support for the proposed legislation. "We would support the goals of this effort, as reasonable tax policy," Rubin said.

Lugar Introduces Bill To Repeal Estate Tax: Sen. Richard Lugar, R-Ind., unveiled three bills to eliminate or phase out the federal estate and gift tax. S.29 would repeal the estate and gift taxes, S.30 would phase out the estate tax over five years by gradually raising the unified credit each year until the tax was repealed in the fifth year, and S.31 would immediately raise the effective unified credit from $600,000 to $5 million.

"I believe the best option is a simple repeal of the estate tax," Lugar said, "however, even if the estate tax is not repealed, the unified credit must be raised. The estate tax has mushroomed into an exorbitant tax on death that discourages savings, economic growth and job formation by blocking the accumulation of entrepreneurial capital and by breaking up family businesses and farms."

Lugar also introduced a non-binding "sense of the Senate" resolution that the current federal income tax should be replaced with a national sales tax. "I believe the national sales tax is the best tax system to replace the income tax," Lugar said. "If we enact a tax system that encourages investment and savings, billions of dollars of investment will flow into our country." Lugar first introduced his national retail sales tax in 1995 when he was a candidate for the Republican presidential nomination.