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Clinton, GOP Leaders Meet About Budget

Wednesday, March 19, 1997

Deloitte & Touche OnLine

President Clinton met with GOP congressional leaders March 19 to discuss the state of negotiations over the fiscal 1998 budget and the effort to balance the budget by 2002.

Today’s discussion "is an effort to get a detailed understanding of where the budget issues now lie," White House spokesman Mike McCurry said prior to the meeting.

Clinton plans to meet with congressional leaders again after Congress’ Easter recess, which runs from March 21 through April 7. Administration and congressional staffs will hold talks during recess and hopefully the principals will be "ready to make rapid progress" after that time, Clinton said after the meeting.

The President called the leaders to the White House after House Speaker Newt Gingrich, R-Ga., suggested that tax cuts be put off temporarily until the federal budget is brought into balance. Gingrich’s statement signified sufficient movement in the GOP’s position for Clinton to extend the invitation. Discussions had been slowed by disagreements over whether the Consumer Price Index should be adjusted, and over the revenue estimates of the President’s budget request.

Even if no progress on the differences between the White House and Congress was made at the meeting, the fact that they are talking face to face is a sign that at least some of the bipartisan spirit that characterized the early part of the year still remains intact.

Hearing On Estate Taxes, Capital Gains: Members of Congress testified before the House Ways and Means Committee March 19 about providing estate tax relief, expanding Individual Retirement Accounts, and cutting capital gains taxes.

House Ways and Means Committee member Jennifer Dunn, R-Wash., testified that the existing estate tax "is wrong" because it harms families. Dunn, with a bipartisan group of legislators, is drafting legislation that would increase the estate tax exclusion, provide targeted relief for family-owned businesses, and cut the estate tax rate.

Rep. Jim McCrery, R-La., also expressed the same concerns as Dunn and offered similarly targeted solutions in his testimony. Rob Portman, R-Ohio, asked whether providing targeted relief for families would create an opportunity to reduce taxes improperly by shifting assets to tax-favored assets. McCrery responded that the definition of a broad definition of a family-owned business would prevent asset shifting from happening. Regardless of the definition, taxpayer disputes with the IRS are inevitable, he warned.

Rep. Jon Christensen, R-Neb., also offered similar comments to Dunn’s remarks.

Senate Majority Leader Trent Lott, R-Miss. , and others separately introduced a bill that would increase the estate tax exclusion to $1 million, and provide targeted relief for family-owned businesses. The first $1.5 million of a family business would be excluded from the estate tax and the next $8.5 million in value would be granted a 50 percent exclusion, under the measure.

"The estate tax is a monster that must be exterminated," Lott said at a press conference, where he was joined by Sen. Max Baucus, D-Mont.; John Breaux, D-La.; Charles Grassley, R-Iowa; and Don Nickles, R-Okla.

Several members also testified at the Ways and Means hearing in favor of capital gains tax relief.

Reps. Peter Deutsch, D-Fla., David Dreier, R-Calif., and Christopher Cox, R-Calif., all testified in favor of a bill (H.R.14) that would cut the capital gains tax rate to 14 percent for most investors and index the basis of underlying capital assets for inflation. The bill has 90 co-sponsors.

Committee members offered differing opinions about the revenue impact of such a proposal. Rep. Philip English, R-Pa.said the revenue loss of an across-the-board capital gains tax cut would be minimized if revenue estimators took "dynamic" factors into account more than they currently do. Dynamic factors are the behavior changes that occur from a change in policy.

Ranking committee Democrat Charles Rangel, D-N.Y., said the debate over capital gains would be more productive if "everyone has the same rulebook." Both Office of Management and Budget and Congressional Budget Office scorekeepers limit their use of dynamic scoring. "Your book is not commonly accepted," Rangel told Cox, who also supports greater use of dynamic scoring.

Rep. Karen McCarthy, D-Mo., told the panel that some form of capital gains relief should be provided. Either broad relief similar to H.R. 14, or relief targeted toward small businesses, such as in H.R. 420, should be enacted. "It is time to move beyond politics and make the investments needed to raise the incomes of working families and ensure a growing economy."

Rep. Collin Peterson, D-Fla., testified that a reduced capital gains rate should be provided based on the length of time an asset is held. A rate reduction structured in this manner would reward investors that make long-term decisions.

Rep. Richard Neal, D-Mass., and Earl Pomeroy, D-N.D., both testified in support of expanded IRAs. Neal’s bill would make all taxpayers eligible for IRAs by 2001, would allow certain tax-free withdrawals, and would create a new back-loaded IRA. The measure has 110 co-sponsors.

Supreme Court Rules For Estate of Hubert: The Supreme Court March 18 decided in favor of the estate of Hubert in an estate tax dispute with the Internal Revenue Service.

In the ruling, the high court ruled that a taxpayer does not have to reduce the estate tax deduction for marital or charitable bequests by the amount of administration expenses that were paid by income generated during administration by assets allocated to those bequests.

The tax code allows estates to deduct from federal estate taxes property or money that is given to a spouse or charity, but clearly requires that those deductions be reduced by administrative costs.

At issue in the case of Commissioner of Internal Revenue v. Estate of Hubert is whether marital or charitable deductions should be reduced if the administrative costs were paid by income generated by the estate if the income was earned after the death of the original taxpayer. The court ruled that reductions are not required in this situation.

Justices Anthony Kennedy, John Paul Stevens, and Ruth Bader Ginsburg, along with Chief Justice William Rehnquist, joined in the plurality opinion. Justices Sandra Day O’Connor, David Souter, and Clarence Thomas filed a concurring opinion that offered different reasoning. Justices Antonin Scalia and Stephen Breyer each wrote dissenting opinions.