CTJ's Tax Justice Digest, September 8, 2006

GOP Leaders In Congress: We Know We Want Tax Cuts Before the Election, We're Just Not Sure Which Ones Yet

With about three weeks before Congress again recesses so that members can hit the campaign trail, Republican leaders have expressed interest in passing tax cuts but have not decided upon a strategy. Senate Majority Leader Bill Frist (R-TN) has expressed interest in trying once again to round up the 60 votes needed to pass his "trifecta" bill. This bill, which has already passed the House, combines an estate tax cut costing about $62 billion a year with a change in the minimum wage and a popular package of tax break extensions (or "extenders" as they're called on the Hill). The bill came up three votes short in the Senate on August 3. For more information, see the estate tax update on CTJ's federal issues page.

GOP leaders are also considering introducing legislation that would make permanent the $1,000 child credit and the provisions mitigating the marriage penalty. These provisions are generally described as “middle-class” tax provisions, although they are applicable in some cases for taxpayers with six-figure incomes. The provisions are not scheduled to expire until 2010. For more information, see the child credit and marriage penalty update on CTJ's federal issues page.

Democratic leaders in Congress have questioned why Congress should devote time now to consideration of tax breaks that are not about to expire when others, such as the "extenders" that were included in the "trifecta" bill have already expired and need to be extended retroactively. The Democrats would rather pass the extender package on its own and also have their own new tax proposal: Roll back the tax breaks given to large oil companies and invest the revenues in developing alternative fuels.

Earmark Reform Stumbles on the Same Tax Policy Controversy that Slowed Down Line-Item Veto Legislation

In the last few months commentators and the public have focused on members of Congress "earmarking," or slipping lines of legislation in appropriations bills that designate funds for specific projects for their districts. The earmark reform conversation in the House of Representatives has shifted away from passing legislation (which is currently held up in a conference committee) to altering House rules in order to change the way earmarks are handled. Unsurprisingly, negotiations have stumbled over how tax break proposals will be handled.

House leaders want the rules to treat tax break proposals as earmarks, or as "targeted tax provisions" only if they benefit just one person. This means that a spending earmark creating a program to help several thousand low-income people might be subject to the greater transparency and reformed process but a tax break that benefits just two people (and probably two extremely wealthy people or business-owners) would not be. As of Friday, House appropriators are reportedly opposed to this plan because they think it lets the House Ways and Means Committee (which writes the tax proposals) off the hook too easily. But their definition of a "targeted tax provision" that should be considered an earmark is also laughably loose. They reportedly would include any tax break that benefits fewer than a hundred people. So a tax break that benefits only the richest fraction of one percent could never be considered an "earmark" because it benefits more than a hundred people.

This controversy is essentially a repeat of one that occurred before the House passed line-item veto legislation in June that would give the President far more power to rescind spending on particular provisions and force Congress to vote a second time — while leaving tax breaks for special interests virtually untouched. That bill is still being pushed by the White House although its prospects in the Senate remain unclear at this time. For more information, see the Budget Process update on CTJ's federal issues page.

New Online Tool Calculates Trade-Offs Between Tax Cuts for the Rich and Other Priorities In States and Districts

The National Priorities Project has unveiled an online tool that calculates the trade-off in a given state or Congressional district between certain initiatives of the Bush Administration against other priorities that could be pursued for the same cost. You can select your state or your Congressional district, and then select a particular initiative of the Administration, including the tax breaks the administration has enacted for the richest one percent of Americans. The calculator will then tell you the number of teachers or public safety officers that could be employed for the cost of that tax break, or the number of people that could be given health insurance or the number of schools that could be built in the state or district.

Gay Couples and Others Could File Jointly Under California Bill

A bill passed by California lawmakers this week would allow same-sex domestic partners to claim "married filing jointly" status on their California income tax returns. Like most other states (and the federal government), California currently discriminates against same-sex couples by requiring them to file tax returns separately-- depriving them of the tax benefits available to other married couples. The San Francisco Chronicle argues that this change is long overdue — and estimates that the current discriminatory treatment can amount to a hefty $2,000 income tax penalty for a same-sex couple earning $67,000 a year. No word yet on whether Governor Arnold Schwarzenegger will sign the bill. Linda Beale's Taxing Matters blog suggests that if enacted, the California law change could someday prompt the IRS to allow similar treatment for California (and any other states in which domestic partnership is legally the same as marriage) at the federal level.

Support Children, Smoke a Cigarette

On November 7, Arizona voters will consider Proposition 203, an 80-cents-a-pack cigarette tax hike. First Things First, the group responsible for Prop 203's place on the ballot, wants to use the annual $150 million from this tax to fund early-childhood education programs. With no apparent irony, the November ballot also includes a ballot issue that would curtail workplace smoking — making it harder for Arizona smokers to contribute to pre-K education funding.

Arizona voters will also cast their ballot for governor this fall, and two of the major Republican candidates want to repeal the state' income tax, a move which would put an estimated $4.5 billion hole in the state's revenue stream. Better hope that cigarette tax hike works out!

The War on Work Continues

An op-ed by Jon Forman calls for the fair tax treatment of earned income. Forman points out that wages are taxed two to three times more than capital gains; a point that ITEP has made in the past. Forman argues that to counter this tax discrimination taxes on wages should be lowered, but a more viable strategy would be to roll back the tax breaks on capital gains and dividends.

No New Taxes In "Taxachusetts"?

The anti-tax advocates' "no new tax pledge" shell game has suckered another victim. Massachusetts Republican gubernatorial candidate, Kerry Healey, has taken the pledge. Boston Globe columnist, Eileen McNamara, makes the astute observation that "[t]he reckless tax pledge is yet another example of the ways in which political candidates underestimate the intelligence of the electorate".

Balancing the Books in Rural America

Public libraries have a long, proud history of being the cornerstone of many communities, especially rural communities. However, as rural populations fall and tax bases evaporate, some libraries are adapting to these changes by reducing hours and employee pay. Here's an interesting article about the plight of small rural libraries in Kansas and their struggle to make ends meet.

Missed a past issue of the Digest? Click here to read past versions.

To report broken links or share comments, email us

CTJ Home Page