June 23, 2006

Despite Massive Tax Give-Aways to Wealthy, Congressional Leaders Want Budget Reforms to Slash Spending

While not showering the richest one percent of Americans with costly tax breaks, conservative leaders in Congress have been vocal about cutting back spending on ordinary Americans. Due to the unpopularity of cutting programs that are enjoyed by large numbers of people, many legislators are eyeing budget process rules that will make it easier to enact cuts in services -- without touching tax breaks targeting special interests. On the same day that it voted to slash the estate tax at a cost of over $60 billion a year, the House also voted to give the President a "line-item veto" that would allow the President to single out spending provisions in an appropriation bill or a bill to expand entitlements, withhold funds and force Congress to vote to approve or reject the rescission, or cancellation of the spending. The President would be allowed to withhold funds for a total of 90 days -- even if Congress rejects the rescission. (The President had proposed that he be able to withhold funds for 180 days).

The bill faces an uncertain fate in the Senate, where the Budget Committee on June 20 approved a bill sponsored by Chairman Judd Gregg (R-NH) that includes more sweeping changes to the budget process. For example, Gregg's bill would also include caps on discretionary spending over the next three years that would force steep cuts. It would also create a commission dominated by the majority party that could propose eliminations or cuts in entitlement programs that would be filibuster-proof in the Senate. Both the House and Senate bills fail to restrain tax breaks and neither include the pay-as-you-go rules that Democrats point out actually reduced deficits in the 1990s. These rules would require that spending increase or tax break be offset with spending cuts or tax increases elsewhere. Judd Gregg called these rules a "stalking horse" for tax hikes.

One of the strangest components of this debate concerns how the line-item veto should affect tax breaks. The White House proposed that only tax breaks benefitting fewer than 100 people should be open to cancellation under the President's line-item rescission. Even that strict limit had a loophole; the tax break would be protected if it applied to people in the same industry or owning the same type of property. The casual observer who is not well-versed in tax policy might ask just what type of tax break would be open to the line-item rescission under these rules.

Remarkably, the House wants even fewer tax breaks to be vulnerable. Under its bill the President could only strip a tax break provision that benefits a single individual or company -- and the chairmen of the tax-writing committees in the House and Senate could decide unilaterally that such a provision is not a "targeted tax benefit" and therefore not open to the line-item veto. It seems unlikely that these chairmen would identify their own provisions as pork that needs to be cut back by the President.

In the Senate Budget Committee, Gregg wanted his bill to at least appear more balanced. Under his bill any tax break can in theory be targeted with the line-item veto, but even it would require that the provisions be defined as “targeted tax benefits” by the Joint Congressional Committee on Taxation before they could be stripped. The Joint Committee is run by a director appointed by the chairmen of the tax-writing committees and Gregg explicitly stated that the director would keep that in mind.

The sponsor of the House bill, Paul Ryan (R-WI) said he did not want the line-item veto used by the President to rewrite tax policy. He even pointed out that some targeted tax breaks are very useful, like those going to manufacturers of "orphan drugs," medicines that supposedly would not be created if not for tax incentives.

It's hard to believe that a President would try to strip a provision that encourages the manufacture of potentially life-saving drugs. What kind of skewed priorities does the House think American Presidents have? Then again, did we mention that President Bush supports the House bill to slash the estate tax for the wealthiest inheritors in America...


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