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Negotiators Fine-Tuning Possible Budget Deal

Thursday, May 1, 1997

OnLine

Congressional Republicans and White House leaders May 1 are fine-tuning an agreement that balances the federal budget deficit by 2002, and calls for action later to provide estate tax relief, cut capital gains taxes, and give taxpayers with children a tax break.

The two sides seem to have reached consensus among themselves but it is uncertain whether the rank and file members of both parties will support the plan on the House and Senate floors.

Gross tax cuts of about $135 billion are under consideration, along with offsetting tax increases of about $50 billion, resulting in a net tax cut of about $85 billion, according to congressional sources.

"I’ve already told them I don’t think we’re going to be able to raise $50 billion out of the revenue code that would get a majority vote in the committee," warned House Ways and Means Committee Chairman Bill Archer, R-Texas.

The agreement will leave room for a child tax credit, education incentives, and expanded individual retirement accounts, in addition to capital gains and estate tax relief. It also should include an extension of the 10% aviation ticket tax or similar levy, language cutting off Section 355 and short-against-the-box transactions, and other revenue-raising provisions from President Clinton’s budget.

It is important to remember that the agreement does not mandate these precise policy changes, but merely expresses the desire of the negotiators, who are asking Congress to write legislation later in the year containing the specified tax cuts.

Don’t tread on me

It will be up to the tax-writing committees to craft the tax component of the final bill, and it is unclear how much latitude they will have when crafting the bill. Archer expressed concern that the resolution may be written too precisely and that it may not give the panel its voice in the process.

If and when an agreement is reached, the next step will be for the House and Senate to pass, probably before Memorial Day, a budget resolution, which will be based upon the accord.

White House spokesman Mike McCurry and congressional Democrats have expressed frustration with the agreement under consideration. House Minority Leader Dick Gephardt, D-Mo., said the tax relief in the package should be targeted to a greater extent to lower income families. Some Democratic support in Congress probably will be needed to pass the budget resolution because the GOP’s margin of control over the House and Senate is so slim.

Legislators more concerned about the deficit than tax cuts are concerned about the long-term impact the deal under consideration would have on the revenues collected by the Treasury. Proposals such as indexing the basis in capital investments to inflation or raising the estate tax exclusion higher than $1 million would cost too much money in 2000 and beyond, some members of Congress fear.

The next step in the process will be for the tax-writing committees to mark-up a reconciliation bill, probably in June or July, or as late as September. The details of the tax cuts and increases will be worked out by the committees. The final budget bill then likely will reach the House and Senate floors sometime in the fall.

Improving The Low-Income Credit: House Ways and Means Oversight Subcommittee members praised the low-income housing tax credit at a May 1 hearing, but agreed that stronger enforcement and compliance measures are needed.

The low-income housing tax credit does a good job helping build adequate housing for poorer Americans, but there is room for improvement in the program, said the committee chair Nancy Johnson, R-Conn. Stronger measures should be looked into but not implemented to the point of "overkill," she added.

The tax credit allows people with "no place to go, to pick up the pieces" and start over, House Ways and Means Committee ranking Democrat Charles Rangel, D-N.Y., testified, praising the program’s effectiveness.

The key compliance improvement discussed would require an independent market study determining whether providing the subsidy in each particular case makes sense from a business perspective.

Relief For Small Businesses Included In Funding Bill: The Internal Revenue Service would be prohibited from imposing penalties against small businesses required to file tax payments electronically beginning July 1, under a fiscal 1997 supplemental appropriations bill approved by the Senate Appropriations Committee April 30.

Many small businesses fear the IRS will target and penalize them for problems they may encounter with the Electronic Federal Tax Payment System (EFTPS), which many of them do not yet understand.

The 1993 law creating EFTPS set a five-year phase-in period for businesses to participate. On July 1, the threshold of $47 million paid in annual employment taxes drops dramatically, and businesses who paid employment taxes of $50,000 or more in 1996 will be required to join the program..