Tax Cut Time is Passing

Clint's Window
by Clint Stretch, Director of Tax Policy, Deloitte & Touche LLP

Monday, August 17, 1998

Clinton may see political advantage if the government shuts. The President could take the high ground immediately before the election and accuse congressional Republicans of advocating policies that are anti-education, anti-environment, or anti-poor. Such a fight over policy questions could distract voters’ interest from news about sex scandals in Washington and put incumbent Republicans on the disadvantage.

So little time

All this means taxpayers waiting for Congress to act on a major tax cut may come away empty handed because there will not be enough time to pass the appropriations bills, campaign for re-election, and cut taxes.

Congress in fact is so strapped that it may not find the time to extend the research and experimentation tax credit, the deduction for appreciated property contributed to a private foundation, or the work opportunity tax credit that expired June 30.

Congressional procedures make passing an extension of these expired provisions outside the context of a tax-cutting budget bill very difficult. (Congress still talks about passing a budget this year, but has been unable to reach a consensus.) Senate rules limit debate on a budget reconciliation bill, but no similar rules limit the number or scope of amendments that could be offered on a stand-alone measure.

Consideration of a tax bill just before the election would cause a free-for-all as members seek to score points with voters. Members would be asked to vote on everything from special interest tax breaks to major budget-busting tax cuts. It is unlikely the Senate leadership would allow this to happen.

In order for an extenders bill to be approved by the Senate outside the budget reconciliation process, all Senators must agree not to offer amendments. Obtaining such an agreement would not be impossible for Senate leaders, but would be very difficult.

What must be done

Congress already is behind schedule on work it must do to fund the federal government in the upcoming fiscal year that begins Oct. 1.

All the government’s discretionary spending must be approved by Congress annually, under the budget law. These appropriations are divided into 13 bills that must be signed into law by the President before the prior year’s funding expires on Sept. 30. (Mandatory spending for programs such as Medicare is funded automatically.)

The Treasury, Postal Service, and General Government appropriations bill, which funds the Internal Revenue Service, illustrates how difficult it can be to pass and send to the President for his approval, the appropriations bills. The House considered about 15 amendments to the Treasury bill before approving it, and the Senate thus far has considered more than 40 amendments and still is debating the measure.

Passing appropriations bills is made even more complicated by the practice of adding unrelated and controversial legislative provisions to the must-pass bills as a way to get difficult provisions enacted. Often this practice results in procedural squabbles in Congress and a showdown between Congress and the White House.

Tension into the fall

This year is no different. The bill funding the Departments of Veterans Affairs, and Housing and Urban Development, for instance, contains a provision that would open up public housing to moderate-income families.

If appropriators cannot come to agreement on this or any other bill by Oct. 1, the agency that receives funding under the bill must shut down. For instance, if Congress fails to approve the Treasury, Postal Service, and General Government appropriations bill by the start of the fiscal year, the IRS would be forced to close its doors until an appropriations bill is approved.

One way Congress has dealt with this situation in the past is to approve an omnibus spending bill that temporarily funds the government at the prior year’s levels. Passing such legislation can be difficult because Congress and the President must agree on exactly how much to spend and how long the stopgap measure will last.

Clinton already suggested he will not agree to a long-term continuing spending resolution. It may be in the President’s interest to agree to short-term continuing resolutions that keep Congress tied up working on appropriations rather than out campaigning.

The relatively small chance for a government shutdown does not rule out the possibility that September and October will be filled with tension over the spending bills and that the debate in Washington will be raised to new heights in this election year.

It is important to remember that due to the lack of consensus in Washington over what to do with the budget surplus, this year was not expected to produce a large tax-cut. Given the difficulty that Congress is having with passing the spending bills, it may leave the expiring tax provisions dangling until next year and produce an even smaller amount of tax legislation this year than what was initially expected.