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Senate Rejects Tripling of Cigarette Tax

Wednesday, May 21, 1997

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The Senate May 21 defeated in a 55 to 45 vote an amendment to the budget resolution that would have sharply increased the excise tax on cigarettes.

The amendment offered by Sens. Ted Kennedy, D-Mass., and Orrin Hatch, R-Utah, would have raised the excise tax on cigarettes by 43 cents per pack and used the resulting revenues to fund health insurance for children.

Senate Majority Leader Trent Lott, R-Miss., warned he would pull the resolution off the Senate floor if significant changes, such as those included in the Kennedy-Hatch language, were made to the resolution by the Senate. It is unlikely that Lott’s ultimatum would be ignored because that would derail the budget deal between the White House and Congress. Senators who wish to offer amendments to the resolution must submit them to Senate leaders by the end of business today.

House Passes Budget Resolution: Congress intends to complete work on the budget resolution this week. The House early May 21 passed the budget resolution 333 to 99. The Senate hopes to complete work on the measure by tomorrow, and as soon as that happens, a House-Senate conference will convene to work out the minor differences between the resolutions, congressional aides said.

It is important to remember that the budget resolution outlines the spending and revenue-raising goals for the upcoming fiscal year. Work on legislation to implement the precise policy changes assumed by the resolution will begin in June when the House Ways and Means Committee and the Senate Finance Committee mark up a tax bill.

The resolution calls upon the House Ways and Means Committee to act on a tax bill by June 13 and for the Senate Finance Committee to act by June 27. Recent reports from Capitol Hill staff aides state that the tax-writing committees could act earlier than expected and not wait until the last minute to complete their work on the tax bill.

Resolution Could Accommodate IRAs, Indexing: A year-by-year analysis of the budget resolution’s tax-cut figures over the next 10 years shows that capital gains indexing and backloaded individual retirement accounts could be accommodated in the tax bill, the Center on Budget and Policy Priorities said in a report released May 21.

Back-loaded IRAs and capital gains indexing provisions as called for in the Senate GOP leaders’ bill, S. 2, would cause the deficit to grow sharply in the years beyond 2007, warned the Center.

The resolution’s revenue loss "pattern is not accidental" since it would help accommodate the GOP agenda, the Center concluded. Rising, then lowering, then rising revenue losses over the 1998 to 2007 period could be used to shoe-horn as much of the Senate Republicans’ tax-cut plan into the final tax bill as possible, the analysis showed.

The year-by-year revenue loss numbers would accommodate a capital gains indexing provision that would not be implemented until January 1, 2001, the study said. Phasing in an indexing provision causes no revenue loss until 2004 or 2005, and increases revenue in 2000 and 2001 due to an acceleration of capital gains revenue, according to the Center.

The year-by-year revenue numbers in the agreement also can, accommodate an IRA provision that backloads the cut in ways that follows the revenue loss pattern of the resolution, the Center said.

Oil Production Bill Offered: A bill (S.770) that would provide tax incentives to encourage production of oil and gas within the U.S. by the eliminating net income limitations on percentage depletion, enhancing the oil recovery credit and other items, was introduced by Sen. Don Nickles, R-Okla., May 20.

"The sooner the administration and Congress acknowledge the critical importance of the domestic oil and gas industry and stop burdening this industry with high taxes and regulatory obstacles, the sooner we can take the necessary actions to preserve and revitalize this important sector of our economy," said Nickles on the Senate floor.

A companion bill (H.R. 1648) was introduced in the House May 15 by Rep. Wes Watkins, R-Okla.