By Elana Schor - 05/10/06 12:00 AM EDT
Republicans yesterday scored a long-awaited political victory on a deal extending President Bush’s investment tax cuts and middle-class relief from the alternative minimum tax.
House and Senate tax writers have spent almost a year hammering out a filibuster-proof extension of the current 15 percent tax rate on capital gains and dividends, which Congress first passed in 2003. Political winds have shifted greatly since, as approval ratings for Bush and the Republican-controlled Congress have plummeted.
With some pundits predicting massive GOP losses this fall, Republicans have worked feverishly to finalize a deal on tax cuts that will be embraced by their base.
Bush spent yesterday alongside Rep. Clay Shaw (R-Fla.), a senior Ways and Means Committee member locked in a tight reelection race. Bush raised $800,000 for Shaw in a fundraiser earlier this week, and the president did not hesitate to ask for a boost of his own from Congress: Extend the tax cuts and extend them now.
“He was saying he hopes to have a bill on his desk by Thursday,” Shaw said. “I’m not sure if it’s ready to move that quickly.”
But minutes after the conference report was officially filed, House Majority Leader John Boehner’s (R-Ohio) office said the Rules Committee would work out guidelines for floor debate quickly enough to call up the bill today.
“This is a responsible bill that protects families and small-business owners from tax increases, while also providing investors with a bigger window of certainty — critical to continued economic growth,” Ways and Means Committee Chairman Bill Thomas (R-Calif.) said in a statement.
The two chambers had a wide gap to bridge on their tax reconciliation bills, which represent the conclusion of an arduous budgeting process for the 2006 fiscal year. Thomas’s version omitted the Senate’s one-year extension of the alternative minimum tax (AMT), which the House passed separately. Sen. Chuck Grassley (R-Iowa), chairman of the Finance Committee, struck Thomas’s prized two-year investment tax breaks from his version after GOP centrists rebelled at the fiscal impact of extending cuts not set to expire until 2008.
Thomas and Grassley, whose conference committee clashes became the stuff of legend on Capitol Hill during negotiations over the Medicare prescription-drug benefit, tangled once again over which tax cuts would need reconciliation protections and which could pass the Senate with more than 60 votes. Wall Street and corporate lobbyists waited with bated breath, hesitant to speak publicly for fear of derailing the conference.
Communication between the Grassley and Thomas camps had decayed so noticeably that by late last week, when rumors began to swirl that an agreement was imminent, Grassley said he was waiting for the House to respond “on paper” by a 5 p.m. deadline.
By yesterday, as Hill aides revealed a deal, lobbyists were ready to celebrate.
“We applaud members of Congress for providing certainty and stability for markets and investors,” said Richard Hunt, senior vice president of policy at the Securities Industry Association, which recently announced a high-profile merger with the Bond Market Association.
But certainty remains elusive on the specifics of a planned second tax package with more politically popular extensions. Grassley had originally insisted on agreeing to both bills before filing a conference report, but that second bill was not yet ready even as lobbyists plotted floor strategy and the House GOP conference scheduled a press event today, complete with “No Tax Increase” stickers.
“We wanted to get this one done first,” said Rep. Paul Ryan (R-Wis.), who was briefed on the deal by Thomas in a confidential Ways and Means conference call yesterday morning. “Leadership and the White House were very, very clear about getting this one done as soon as possible.”
Grassley may have lost the battle for firm approval of the second tax-cut bill, likely to include a renewed sales-tax deduction and other popular tax breaks, but he prevailed on the level of AMT relief in the first bill. The higher Senate AMT exemption levels will be part of the conference report, rather than the House exemptions that were not adjusted for inflation.
Shaw called the AMT — and Congress’s annual need to tweak its exemption — “the gorilla in the room.”
“We just need a vote in the Senate. This whole way of patching things up every year is no way to govern,” Shaw said. He contrasted the Senate’s historically moderate approach and the House’s more objection-proof majority, lamenting the frequent question of “What can we pass that’s not going to offend this senator or that senator during the debate?’
Another crucial goal for financial and corporate lobbyists, the extension of the so-called “active financing” exemption, is also included in the first bill. The exemption would tax multinational corporations on foreign profits only when a U.S. subsidiary claims the benefit as a dividend.
The tax reconciliation agreement raises revenue by striking the income cap on holders of individual retirement accounts seeking to convert to Roth IRAs, which accrue tax-free interest. The revenue raised from that move is key to keeping the bill within the $70 billion limit agreed upon in last year’s budget resolution, but newspaper editorial boards and some economists have criticized the Roth IRA expansion, saying it amounts to tax breaks for the wealthy that pay for further tax breaks for the wealthy.