Federal Budget Wars: Will Bush Say the "V word?"

Now we know what it takes to provoke an actual Bush veto: a Senate bill including a tax hike on oil companies. S.2020, which the Senate passed earlier today, provides over $70 billion in new tax cuts over 10 years--and dares to provide revenue offsets for $30 billion of the cuts. Net loss to the feds is $41 billion over 10 years.

Here's how the Senate bill's tax provisions are divvied up:
*$7.6 billion in hurricane-related tax relief;
*$60 billion in "extenders"-- that is, extension of various temporary tax breaks;
*$0.3 billion in new tax breaks for charitable contributions;
*$3 billion in "miscellaneous" tax breaks;
*$30 billion in revenue raisers, including $5 billion from the oil industry.

If you've seen the list of extenders, you know I'm oversimplifying a bit. But the really important things to keep your eye on between the Senate-passed bill and the House version, HR 4297, which got pulled off the floor Friday and now won't get voted on until after Thanksgiving, are the following:
1) AMT relief. On January 1, 2006, the temporarily higher exemptions from the Alternative Minimum Tax are scheduled to go away, which means that even more upper-middle-income taxpayers will fall into the AMT trap. The very least Congress needs to do is to extend these temporary exemptions. The Senate bill does so, but for only one year. The House bill ignores this necessary fix completely. The Senate's one-year extension costs nearly $30 billion.
2) Capital gains and dividends tax breaks. The current tax breaks for cap gains and dividends, introduced by the Bush 2003 tax cuts, are scheduled to go away on January 1, 2009. The Senate, sensibly, has bigger and more immediate fish to fry and is leaving this alone for the moment. The House bill extends the cap gains and dividend breaks for two more years, at a cost of $50 billion. (A new CTJ analysis shows the impact of the cap gains/dividend cuts for each state; it's here. )
3) Under-the-radar tax breaks for the top 1%. In the maze of phaseouts and phaseins, it's easy to forget that some of the 2001 Bush tax cuts actually haven't even started yet. But on January 1, 2006, two new ones are scheduled to start. Current law has "clawback" provisions that reduce the amount of itemized deductions and exemptions for a small number of the wealthiest taxpayers. Starting in January, these two clawbacks will gradually go away. The impact on 2006 is relatively small by federal tax standards-- just under $3 billion, not counting added interest on the national debt-- but a staggering 96% of the tax cuts from these two little provisions will go to the wealthiest 1 percent of Americans. Paring back these two tax breaks is an easy move that has basically no impact for 99% of Americans. But so far, only Senators Harkin and Durbin have introduced legislation that would do anything about it, and it doesn't seem likely to go anywhere.

There are things to be mad about in these two bills-- yes, even maybe even mad enough to veto. But a small tax hike on the energy industry ain't among them.