By now everyone knows that right-wing organizations such as "FreedomWorks," "Americans for Prosperity," and "Conservatives for Patients Rights," have organized a campaign to send hecklers to town hall meetings held by any member of Congress who might possibly vote in favor of a health care reform bill. This campaign has been boosted by right-wing media personalities like Rush Limbaugh and Lou Dobbs, who have encouraged their followers to show up at town hall meetings to shout down lawmakers.

The anti-reform protesters, whose main goal seems to be shutting down any public discussion on the topic of reform, have even admitted in some cases that they are not constituents of the lawmakers they are heckling. In other cases, those town hall protesters who claim to be merely “just a mom from a few blocks away” and “not affiliated with any political party” have turned out to be Republican party officials.

Conservatives at Town Halls, Conservatives in Congress: Same Goals, Different Methods

Now, one cannot simply assume that conservative members of Congress are just as crazed and extreme as the anti-government ideologues showing up at these town hall meetings with the intent to shut them down. Members of Congress, after all, have an image of sobriety to maintain (which is hard to do when you're hanging your opponents in effigy or making death threats against them).

So conservatives in Congress have taken a different approach to accomplish the same goal (killing reform). Instead of shutting down the discussion, conservative lawmakers want the discussion to continue... forever.

Many members of Congress have given up on the willingness of Republicans to truly change how the health insurance industry operates, but one exception is the chairman of the Senate Finance Committee, Max Baucus (D-MT). His negotiations with two other Democrats and three Republicans (the so-called "gang of six") have moved very, very slowly.

While Baucus has said he wants a bill to at least be made public by September 15, his ranking member, Charles Grassley (R-IA) has said he doesn't see the rush (after he already refused to agree to anything before the August recess).

The Rush to Compromise

Some Senate Democrats continue the rush to compromise away key elements of health care reform, even though there is little indication that this will win over their Republican colleagues. Particularly alarming are statements from certain Democratic Senators that a Senate health care reform bill will have no new taxes on individuals at all. Revenue will come from savings (which makes sense to the extent that it's possible) and from charging an excise tax on insurance companies for plans that exceed a certain cost level.

The idea that any revenue-raiser is going to be embraced by conservative members of the Senate seems a little naive to say the least. And one has to worry about the logic being employed. If the only "politically viable" taxes are those enjoying unanimous support and affection, then it's difficult to see how Congress can do anything that costs money.

So-Called Centrists Don't Seem Promising

To gauge the chances that the bipartisan approach will be successful, let's consider the three Republicans who are part of the "gang of six."

We have Senator Grassley of Iowa. He recently held up a chart on the Senate floor with a children's book drawing of a dragon to illustrate the "Debt and Deficit Dragon," and then held up another chart illustrating a character he called "Sur Taxalot." He then rambled on about how "the surtax is a large, heavy, painful weapon, and lethal to America's job engine, the goose that laid the golden egg," and said that Sur Taxalot "does nothing to slow the dragon's exponential growth."

It's hard to decide what's more objectionable: conflating numerous bedtime stories, fables and metaphors into a couple sentences, or regurgitating myths about the effects of the House's proposed surcharge on small business -- myths that have already been discredited.

Then we have Senator Mike Enzi (R-WY). In addition to being a member of the Finance Committee, he's also the ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee (you know, the Senate committee that actually approved a health care bill). During the HELP debate, Enzi offered countless amendments that essentially contradicted the most fundamental goals of reform. It's perhaps unfortunate that no Republicans could bring themselves to vote for the bill that the HELP committee eventually approved, but it would be far more unfortunate if the committee had approved no bill at all.

Then there is Olympia Snowe of Maine, who is something of an enigma. She is thought of as the quintessential centrist in the Senate. She voted against one of the key components of the Bush tax cuts, the 2003 law that slashed taxes on capital gains and dividends. But she has supported plenty of regressive tax cuts (like the proposed repeal of the estate tax) and managed to get a failing grade on CTJ's Congressional Tax Report Card covering the years of Republican control. (Grassley and Enzi each received scores of zero percent.)

Compromise with Those Who Oppose Reform?

The bottom line is that the conservatives in the Senate are likely to be about as helpful as the conservatives rushing to lawmakers' town hall meetings to shout and harass. The former hope to stretch the health care debate into infinity while the latter hope to prevent the discussion from happening, but the goal -- stopping health care reform -- seems to be the same.

Some of the so-called centrists are fundamentally opposed to progressive taxation just as they are fundamentally opposed to health care reform. Compromising on either the tax provisions or the health reform provisions may therefore prove pointless.

As members of Congress return to their districts during the August recess, they are sure to be bombarded by anti-government activists claiming that small businesses will be hurt by health care reform.

In the House of Representatives, the three committees with jurisdiction have approved a bill. The Ways and Means Committee and the Labor and Education Committee each approved a health care reform bill several weeks ago while the Energy and Commerce Committee finally approved its version on Friday, just before adjourning for the August recess. The Energy and Commerce Committee was hung up over disagreements between the committee's more conservative "Blue Dog" Democrats and main-stream Democrats like chairman Henry Waxman.

In the Senate (which has one more week before starting its recess), one of the two committees with jurisdiction over health care reform has approved a bill while the other, the Senate Finance Committee, has not yet found the bipartisan agreement that Finance chairman Max Baucus hopes for.

The Surcharge and Small Businesses

There are several unwarranted complaints about how the House bill (H.R. 3200) would impact small business. One involves the high-income surcharge that would partially finance the overhaul. Opponents of health care reform have argued that the surcharge would reduce small businesses' incentives to hire workers.

CTJ has previously released a report showing that only 1.3 percent of taxpayers would even pay the surcharge in 2011. Of the taxpayers who can realistically be called "small business owners," only 4 to 5 percent would pay the surcharge.

More importantly, taxes don't reduce the amount of money a small business owner has to pay workers. A taxpayer's income for tax purposes does not even include any money that the taxpayer pays to someone else as wages or salaries. So the surcharge would have no effect on incentives to hire workers. And any business owner who needs to purchase equipment to expand will probably be able to write these purchases off under the special expensing breaks available to small businesses.

In other words, opposition to the surcharge has more to do with opposition to progressive taxes and little or nothing to do with small businesses.

"Pay-or-Play" Rules

Another small business-related complaint concerns the "pay-or-play" rules that would require companies to either offer health insurance to their employees or pay a penalty. Some complain that the proposed pay-or-play rules do not exempt enough small businesses and that the tax credits for small businesses that provide health insurance are not generous enough.

Under the bills approved by the House Ways and Means and Labor and Education Committees, companies would be required to provide health insurance meeting certain standards to their employees or they would be subject to a payroll tax of 8 percent. Companies with a total payroll of less than $250,000 would be exempt. The payroll tax would be phased in gradually for companies with a total payroll between $250,000 and $400,000.

The version approved Friday by the Energy and Commerce Committee would exempt companies with an annual payroll under $500,000 and the full 8 percent payroll tax would only apply to companies with annual payrolls above $750,000.

Last weekend, the President's Council of Economic Advisers (CEA) released a report showing that firms with less than $250,000 in total annual payroll accounted for 77 percent of all firms, and 13 percent of all private sector employment, in 2006. (The CEA report also shows, indirectly, that 75 percent of all private sector employment that year was in firms with total payroll of more than $1 million.) In other words, a significant portion of the labor force would be in companies that are exempt from the "pay-or-pay" rules under H.R. 3200, and it's not obvious that expanding that exemption is a good idea.

The CEA report also explains why small businesses have the most to gain from health care reform. Small businesses that offer coverage to their employees often pay high fees to brokers. They pay more for the fixed administrative costs of insurance companies since they have fewer employees to spread those costs over. They suffer from insurance companies' practices of charging higher premiums to entities that have a workforce with greater health needs (which can mean a single sick employee in the case of a true small business).

The bills approved in the House would allow small businesses to purchase insurance in an exchange where administrative costs would be driven down through competition (thanks to an efficient public plan that competes with private insurers). Discrimination based on health status would be prohibited.

The CEA report also points out that even small businesses that do not offer health insurance to their employees could be helped tremendously by the reform, since it includes subsidies to low- and middle-income families who buy health insurance on their own in the exchange. This will make many people more willing to work for a company that cannot afford to offer health insurance to its employees.

Will Business Associations Ever Be Happy?

In some cases, it is unclear what outcomes critics of the current proposal desire. The National Federation of Independent Business (NFIB) published ten reasons why it opposes H.R. 3200, and some of them contradict each other.

NFIB finds the payroll tax imposed on firms not offering health insurance to be unfair. "Payroll taxes are especially onerous," NFIB argues, "because they tax labor rather than profits. No matter how profitable or unprofitable a business might be, they are forced to pay this tax."

One would think NFIB would be happier with the surcharge. The surcharge is not aimed at businesses at all but at high-income individuals. For taxpayers who are small business owners, the surcharge would only apply to their profits, and even then it would only apply to the 4 or 5 percent of small business owners with enough profits to be impacted.

Sadly, NFIB cannot support this either, because "small businesses are struggling to find capital." (Never mind that equipment purchases by any true small business would probably qualify for small business expensing, as already explained.)

NFIB's release also argues that the tax credits available for small businesses are not sufficiently generous. Since NFIB seems to oppose all taxes, it's unclear how they would pay for an expansion of the tax credits. Perhaps they feel that Congress should try harder to squeeze savings out of the pharmaceuticals, hospitals, insurance companies and other players in the health care system. When NFIB is ready to campaign for that, they will have our support.

The three committees in the U.S. House of Representatives that share jurisdiction over health care are expected to release a bill today that will include a surcharge on high-income families to help finance health care reform. Based on the details that have been made public so far by the Ways and Means Committee, Citizens for Tax Justice has estimated the national and state-by-state impacts of the surcharge and incorporated this information into reports that are being released by several state-based organizations.

CTJ finds that the surcharge would be paid by the richest 1.3 percent of taxpayers nation-wide. The percentage of taxpayers impacted varies by state, but not by much. The state with the largest percentage of taxpayers affected is Connecticut, where 2.8 percent would pay the surcharge. The state with the lowest percentage of taxpayers affected is West Virginia, where only 0.5 percent of taxpayers would pay the surcharge.

You can find this analysis, as well as CTJ's other recent work on health care financing options, here: http://www.ctj.orgpayingforhealthcare.htm

CTJ is a member of the coalition of organizations called Rebuild and Renew America Now (RRAN), which has been working for several months to educate lawmakers and the public about progressive options for financing health care reform. Besides a surcharge, another option that RRAN has focused on is the President's proposal to limit itemized deductions for high-income families. Another is the proposal formulated by CTJ to reform the Medicare tax so that it applies to the income of wealthy investors the same way it applies to the wages and salaries of workers. CTJ's Medicare tax proposal has been a topic of discussion among some members of the Senate who are reported to be considering it as one of their revenue measures to finance health care reform.

Meanwhile, state-based organizations have released reports on these proposals in Indiana, New Jersey, New Mexico, West Virginia, Wisconsin and several other states last week and this week. This follows the release last week of a statement of principles signed by over 600 national, state and local organizations from every state in support of a progressive approach to financing health care reform and other major initiatives.

As Congress debates health care reform, increasing attention is being paid to the question of how reform can be financed, even though no major decisions on financing have been announced by key lawmakers.

Earlier this week, the Congressional Budget Office (CBO) released estimates for proposals from the Senate Health, Education, Labor and Pensions (HELP) Committee and the Senate Finance Committee. The HELP proposal was clearly only a partial proposal, as it did not yet include several expected provisions that would likely further reduce health care costs overall, and it's unclear how complete was the Finance proposal that CBO also scored. (It seems unlikely that the Finance proposal was complete given that Finance Committee chairman Max Baucus has long been laboring to create bipartisan consensus.)

Nevertheless, the costs estimates, $1 trillion over ten years for the HELP proposal and $1.6 trillion over ten years for the Finance proposal, have prompted some to say the proposals should be scaled back. Senator Baucus stated a desire to hold the total cost under $1 trillion -- an entirely arbitrary number. The Finance Committee subsequently released plans for a scaled back health care plan that would not include a public option and that would provide far less support to help poor and working class families obtain health insurance.

Over in the House, the Ways and Means Committee is reported to be considering several revenue options, some of which are progressive (like a surtax on high-income people and the President's proposed limit on the benefits of itemized deductions for high-income people). But there are some items on the list that would impact low- and middle-income families, like a national sales tax and its cousin, a value-added tax (VAT), and a simple increase in the flat rate Medicare tax.

There Is Another Way

Congress does not need to scale back reform and it does not need to turn to regressive revenue sources. First, there are ways to reduce the costs of a plan that involve stronger reforms rather than weaker reforms. For example, a public plan could more aggressively compete with private insurance and force down the costs of care overall.

Second, if health care reform will require additional revenue, then Congress has several options to raise revenue in progressive ways. That is the message that the Rebuild and Renew America Now (RRAN) coalition is taking to America in the coming weeks. The religious organizations, service-providers, unions, advocates and other types of organizations that belong to RRAN have turned their attention to educating Congress and the public about the myriad ways that Congress can raise substantial sums of revenue without hurting struggling families and without harming the economy.

These progressive financing options include the many revenue-raising provisions the President proposed in his budget to fund health care and several other initiatives. (See the CTJ report explaining these options put forth by the President.) They also include several additional options formulated by CTJ and endorsed by Health Care for America Now (HCAN) and RRAN. (See CTJ's report laying out these additional progressive revenue options to fund health care reform.)

The Medicare Tax

For example, Congress might want to expand the Medicare tax, given that it is the one tax we currently have that is dedicated to health care. But there is a much better way than simply increasing the single rate (currently 1.45 percent paid by employees and another 1.45 percent paid by employers) that applies to all wages and salaries. As the CTJ report on health care financing options explains, the Medicare tax currently only applies to wages and salaries. This means that a wealthy person whose income takes the form of capital gains, stock dividends and interest could pay no Medicare tax at all in a given year, while someone who works for a living but has a much smaller income will pay the Medicare tax on every dollar they earn.

To address this obvious unfairness, Congress could extend the Medicare tax to apply to the investment income that is currently exempt. CTJ's report includes a version of this that would raise over $40 billion a year even while exempting most of the investment income of seniors. This would primarily impact just the richest one percent of taxpayers and would simply end an unfair feature of our tax system.

President Obama's Proposal to Limit Itemized Deductions for the Rich

There are plenty of other progressive revenue options (laid out in both reports) which Congress can turn to, particularly the President's proposal to limit the benefits of itemized deductions to 28 percent. Currently itemized deductions subsidize certain activities (like buying a house) through the tax code, and it subsidizes them at a higher rate for high-income people than it does for low-income people.

For example, the itemized deduction for home mortgage interest is supposed to encourage home ownership, but it does so in an outrageously unfair manner. Someone rich enough to be in the 35 percent income tax bracket will save $350 for each thousand dollars they spend on home mortgage interest, while a family in the 15 percent tax bracket will save only $150 for each thousand dollars they spend on home mortgage interest. The President would reduce, but not eliminate, this disparity by limiting the savings for each dollar of deductions to 28 cents.
A_Capital_Idea.pdf

All eyes are on Congress as members of key committees discuss a comprehensive health care reform package. The President has asked to have a bill on his desk by October 1. This week the Senate Health, Education, Labor and Pensions Committee released its draft plan on the same day that House committee chairmen briefed House Democrats on key features of their plan. Both of those plans are long on details about reforming the health care system, but short on ways to pay for it. For now, Congressional committees are focusing on the features of the plan itself and putting off the discussion of the financing.

The Senate Finance Committee, which will have to tackle the financing, in May released a 41-page list of far-ranging options for financing health care reform which included changing the tax exclusion on employer-provided health benefits, raising excise taxes on alcohol, and imposing excise taxes on sugar-sweetened drinks. Earlier this month, the non-partisan Joint Committee on Taxation (JCT) provided lawmakers with revenue estimates for certain financing options currently being discussed.

The President is still talking about his budget proposals for financing health care reform, including limiting the value of itemized deductions for higher-income taxpayers to 28 percent, which would raise revenue in a more progressive manner than the other options listed in the Finance Committee document. (See the CTJ report describing this and other revenue proposals in the President's budget.)

As the bills wind their way through Congress, organizations in the Rebuild and Renew America Now (RRAN) coalition are reminding lawmakers that there are many progressive ways to raise revenue to fund health care and other initiatives. Besides the President's revenue proposals, several additional options are described in CTJ's May 21 report on health care financing.

For example, one option is to expand the Medicare tax to apply to all income (with an exemption for seniors), whereas today it only applies to wages and salaries. This proposal does not complicate the tax code the way many other proposals would and it raises revenue with a tax already in place to fund health care. It is also more progressive than many other options being considered.

Representatives of RRAN member organizations are meeting with lawmakers and their staff to discuss progressive revenue-raisers like this.

Organizations that want to sign RRAN's two-page statement of principles on progressive revenue sources can go to the Coalition on Human Needs website or simply click here. For more information about the coalition visit www.rebuildandrenew.org.

Citizens for Tax Justice (CTJ) has joined forces with a broad coalition of organizations called Rebuild and Renew America Now (RRAN) to promote a simple message: Congress has a whole lot of options to raise revenue to pay for health care reform and other initiatives without unfairly impacting low- or middle-income people and without harming the economy.

These progressive revenue options include both the tax changes included in President Obama's fiscal year 2010 budget proposals as well as additional options formulated in a recent report by CTJ and endorsed by Health Care for America Now (HCAN) and the Service Employees International Union (SEIU). (See CTJ's report on the President's tax proposals and CTJ's report on additional revenue options to fund health care reform.)

RRAN is a coalition that engaged in education, communications and lobbying efforts in support of the President's budget and other progressive initiatives earlier this year and has mobilized advocates and activists all over the country. Many of the organizations involved are usually focused on particular public services or progressive reforms, but have realized that all public services and reforms are in danger if Congress can't bring itself to raise the revenue needed to pay for them.

RRAN has invited organizations (both national organizations and state organizations) to sign onto its two-page statement of principles for this new campaign for progressive revenue options. Signing does not commit an organization to do anything (although all are also encouraged to become active in RRAN's activities) but simply states support for efforts to pay for initiatives in progressive ways. Anyone who is authorized to sign on behalf of an organization can visit the website of the Coalition on Human Needs (CHN) or simply click here.

The statement lists three broad principles to guide Congress's efforts to find revenue:

1. Adequacy. The federal tax system should raise sufficient revenue over time to meet our shared priorities and invest in our common future.

2. Fairness. Tax preferences that overwhelmingly benefit the wealthy and corporations should be eliminated, and individuals and businesses should contribute their fair share of taxes, based on ability to pay.

3. Responsibility. We should not saddle future generations with unsustainable levels of debt.

The statement also lists examples of the kinds of tax policies RRAN supports:

• raising revenues from upper-income households;
• assessing a significant tax on large estates;
• reducing abuses among corporations and individuals who shelter income in offshore tax evasion or avoidance schemes;
• closing financial industry, oil and gas, and other inefficient corporate loopholes; and
• reducing tax preferences for unearned as opposed to earned income.

For more information in the coming days, visit RRAN's website: www.rebuildandrenew.org

A new report from Citizens for Tax Justice explains that Congress has several options to fund health care reform in a progressive way. The report was made public today by Citizens for Tax Justice (CTJ), the Service Employees International Union (SEIU), and Health Care for America Now (HCAN), at a press conference in which representatives of each group discussed the need to fund health care reform in a fair way.

Read the report.

The report describes several options that would accomplish three objectives simultaneously. First, they would raise a significant amount of revenue, more than a trillion dollars over a decade. Second, they would simplify the tax code, since they involve eliminating special deductions and loopholes and moving closer to taxing various types of income received by individuals in the same way. Third, they would ensure that the federal income tax continues to be a progressive tax. Almost all of the new revenue would be paid by taxpayers with adjusted gross income (AGI) above $200,000 for singles and above $250,000 for married couples, in keeping with President Obama's approach to tax policy.

Politicians and pundits have lately written or spoken of the "difficult choices" and "sacrifices" that will be necessary if the United States is to find a way to fund health care reform in a fiscally responsible way. Some have suggested new taxes on health insurance premiums. A few have even proposed a highly regressive national sales tax, or its cousin, a value-added tax. In fact, however, there are straightforward ways to raise revenue that will not be overly burdensome for taxpayers and which will not harm the economy. They involve eliminating or reducing several subsidies and preferences provided in the federal tax code to the wealthiest and most powerful among us. Combined with savings in the existing health care system, these measures could raise enough revenue to adequately fund health care reform.

Americans may not know the details of every tax break enjoyed by corporations or wealthy individuals, but they might be particularly keen to focus on them after providing Wall Street (and thus the richest people in America) the biggest taxpayer-funded bailout in history.

After propping up major corporations and their CEOs and shareholders, Congress might find it reasonable to make the following deal. Main Street is paying to make Wall Street healthy. Wall Street, when it is healthy, will return the favor.

Read the report.

Approval Marks a Major Step Towards Enacting President's Agenda

On Wednesday, both the House and Senate approved a Congressional budget resolution for fiscal year 2010 that paves the way for several of the President's major initiatives. The resolution allows Congress to make new investments in education and clean energy and puts in place procedures that will make it easier for Congress to enact comprehensive health care reform. It also allows Congress to extend the Bush tax cuts for all but the richest Americans.

The budget resolution allows for about $3.5 trillion in federal spending in fiscal year 2010 and includes important tax and spending provisions related to years after that. It is not a law and is not binding, but puts in place caps on the spending that Congress appropriates each year, sets targets for tax and spending changes and includes certain procedural changes that make it more likely Congress will meet these goals.

Tax Cuts Extended for All but the Rich

For example, the budget resolution allows Congress to reduce revenues by a certain amount by extending the Bush income tax cuts. It is understood that the amount of revenue-reduction allowed would be sufficient to extend the Bush tax cuts for those with incomes below $250,000. It also allows for Congress to reduce revenues by preventing the Alternative Minimum Tax (AMT) from expanding as it is scheduled to under current law. Similarly, it allows Congress to extend the estate tax rules in effect in 2009 instead of allowing the estate tax to revert to the rules put in place during the Clinton years, before Bush's cuts in the estate tax were enacted.

The resolution allows for Congress to enact these tax cuts without finding new revenue to pay for them -- on one condition, which is that Congress enacts a statutory pay-as-you-go (PAYGO) rule that will (in theory) prevent Congress from enacting any more legislation that will increase the deficit. That means that any additional tax cuts (say, an extension of the Making Work Pay Credit that was enacted for two years as part of the economic stimulus package) would have to be combined with revenue-raising provisions to offset the costs.

Predictably, allies of former President George W. Bush have expressed horror that Democratic leaders and President Obama wish to extend the Bush tax cuts for 97.5 percent of Americans rather than 100 percent. The Democrats and the President would allow the Bush tax cuts to expire for singles with incomes over $200,000 and married couples with incomes over $250,000 (which make up roughly the richest 2.5 percent of taxpayers).

For their part, House Republicans used the budget debate to demonstrate to the public just how lopsided the tax code would be if their goals were ever realized and just how much government would have to shrink because of the revenue losses that would result. Earlier this month, the ranking Republican on the House Budget Committee presented his tax and spending plan which would cut and privatize Medicare, convert Medicaid into limited block grants to states, repeal the recently enacted economic stimulus law and deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs.

Citizens for Tax Justice published a report concluding that under this GOP plan, over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes than they would under the House Democratic plan in 2010, while the richest one percent of taxpayers would pay $75,000 less, on average.

Final Budget Leaves Out the Senate's Outrageous Estate Tax Cut

Progressives scored a victory when Democratic leaders agreed to exclude from the final budget an amendment adopted by the Senate during its budget debate on April 2 which would slash the estate tax to benefit multi-millionaires. Before the Senate approved this amendment, Majority Leader Harry Reid (D-NV) said, "It is so stunning, so outrageous that some would choose this hour of national crisis to push for an amendment to slash the estate tax for the super wealthy." His common sense view carried the day as negotiators hammered out the final resolution.

The tax cuts enacted under President Bush in 2001 scheduled a gradual repeal of the estate tax, with the amount of assets exempted from the tax gradually increasing over a decade and the tax rate on estates gradually dropping until the estate tax would disappear entirely in 2010. Like almost all of the Bush tax cuts, this cut in the estate tax expires at the end of 2010, meaning that rules scheduled under President Clinton would come back into effect in 2011.

The budget resolutions passed out of the House and Senate budget committees in March both assumed that the estate tax rules in place in 2009 would be made permanent, meaning the Bush estate tax cut would be partially made permanent but the estate tax would not disappear entirely in 2010. The Center on Budget and Policy Priorities released a report finding that about 99.7 percent of estates would be untouched by the tax under this proposal.

Incredibly, 51 Senators voted in favor of the amendment offered by Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) to cut the estate tax even more than this. The 2009 estate tax rules exempt the first $7 million of assets passed on by a married couple (as well as assets they leave to charity) and tax the rest at a rate of 45 percent. The Kyl-Lincoln amendment called for a $10 million exemption for married couples and a 35 percent rate.

Taking Steps Towards Enacting the President's Priorities

Progressives scored another victory in the area of health care. House and Senate leaders decided to include in the final budget resolution a mechanism known as "reconciliation" which will allow the Senate to enact health care reform and higher education loan changes with a simple majority vote.

The practice of filibustering legislation in the Senate has, over the years, turned into a default rule that three fifths the Senate's members must agree to pass a bill. This means that legislation supported by Senators representing a majority of Americans is often blocked. Many advocates fear that this is exactly what could happen to health care reform and many other of the President's important initiatives.

Reconciliation is a way around this obstacle. A budget resolution can include reconciliation instructions specifying that committees will pass legislation that can then pass the full House and Senate under a streamlined process. In the Senate, that streamlined process means that the bill can be passed with just 51 votes.

The particular version of reconciliation included in this budget is optional, meaning Democratic leaders will resort to using it only if bipartisan consensus proves elusive.

Several Republican Senators, and some Democratic Senators, have taken the view that majority rule is undemocratic, and have called reconciliation a partisan ploy to "ram through" the President's agenda. (The idea of the Senate moving too quickly is a little hard for any Hill observer to understand.) More importantly, enacting health care reform will require Congress to raise a great deal of revenue, and finding a large bipartisan majority for that might be a challenge.

Finally, some have complained that reconciliation is only to be used for deficit-reduction, but this is entirely unconvincing because these are largely the same members who voted in favor of reconciliation bills during the Bush years that actually increased the deficit by cutting taxes.

The U.S. House of Representatives and the U.S. Senate both approved budget resolutions on Thursday that move Congress a step closer to enacting President Obama's agenda, without being quite as bold or explicit as the budget outline released by the President in late February. Both resolutions would spend about $3.5 trillion in 2010 and include non-binding, but important, provisions affecting spending and revenues in years after that. As lawmakers from both chambers leave Washington for their spring recess, behind-the-scenes negotiations will likely pave the way for a House-Senate conference to take place upon their return to iron out the differences between the two resolutions. On some key issues like estate tax and health care, the House has made wiser choices that will hopefully be maintained in the final budget resolution.

The basic thrust of many of the tax policies embodied in the budget resolutions mirror the President's proposals. Both assume the extension of the Bush income tax cuts for everyone except taxpayers with incomes above $200,000 (or $250,000 for married couples). Taxpayers above these thresholds are affected by the top two income tax rates, which would revert to 36 and 39.6 percent. Both resolutions would extend the "AMT patch," a measure that increases the exemptions from the Alternative Minimum Tax to ensure that most taxpayers are not affected by it. (The chambers differ on the extent to which the costs of the AMT patch will have to be offset with revenue-raising measures in the future.)

The resolutions do not follow the President's proposals on certain issues. For example, President Obama proposed that the income tax cuts aimed at working families and included in the recently-enacted stimulus bill be made permanent. The resolutions would make some of these permanent, like the expansion in the child tax credit and the American Opportunity Tax Credit for higher education.

But they would not make permanent the Making Work Pay Credit, one of Obama's signature tax policies. Neither do they include any specific language to create a "cap and trade" program to reduce greenhouse gas emissions, which, in the President's proposal, would produce the revenue needed to offset the costs of the Making Work Pay Credit and other energy initiatives.

Similarly, the resolutions do not include language laying out how Congress will pay for health care reform. (The President's budget outline included a reduction in the benefits of itemized deductions for the rich to partially fund health care reform.)

None of this means that Congress will not act on these proposals of the President's. The resolution includes language allowing for deficit-neutral legislation in these areas without specifying how money will be spent or how it will be raised.

Congress's next important test involves settling the differences between the House and Senate resolutions. When it comes to revenues raised to pay for health care or revenues raised from the estate tax, hopefully the choices made by the House will be maintained in the final budget resolution. See the following Digest articles for more.

Estate Tax: Senate Approves a Break for Millionaires that Leader Reid Calls "So Stunning, So Outrageous"

Reconciliation for Health Care Reform: House Moves to Stop Senators' Obstruction of Measures with Majority Support

House GOP's Alternative Budget: Poor Pay More, Rich Pay Less, Stimulus Repealed and Government Shrinks

Unlike the Senate budget resolution, the House resolution includes "reconciliation" instructions that would protect a bill from the filibuster that can thwart legislation in the Senate even if it has majority support. It is understood that the reconciliation procedure would be used to enact health care reform.

Opponents of the President's agenda have been surprisingly effective at casting as unfair the procedure that would allow legislation to be enacted by a majority vote in both chambers. The media has in many cases uncritically quoted lawmakers who feel it would be partisan and divisive to allow the Senate to approve a bill with only 59 out of 100 members voting in favor.

Some have complained that reconciliation is only to be used for deficit-reduction, but these are largely the same members who voted in favor of reconciliation bills during the Bush years that actually increased the deficit by cutting taxes. Even putting that aside, it's not clear that the original purpose of reconciliation is any more important than the original purpose of the Senate filibuster, which was originally used only on rare occasions but has turned into a 60-vote requirement to pass any bill introduced in the Senate.

It's true that there are rules limiting what sorts of measures can be enacted through the reconciliation process. (Provisions that have no quantifiable budget impact in the next few years may be impossible to pass through reconciliation.) But the limits imposed by a potential filibuster may be greater. Whether health care reform happens at all hinges on whether or not Congress can raise the revenue to pay for it. Hopefully, bipartisan agreement can be found on how to do that. But Congressional leaders would be smart to leave themselves the option of reconciliation in case such consensus proves elusive.

This week, Citizens for Tax Justice updated its recent report on the tax proposals in the President's budget outline to include estimates of the proposals' impacts on different income groups in every state. The new state figures examine the proposed cuts compared to current law and also compared to the baseline that the Obama administration uses in presenting its budget figures. The figures show that, whichever baseline is used, the vast majority of families in every state will get a significant tax break.

Read the report. (State-by-state figures are in the final appendix.

Citizens for Tax Justice called uponPresident Obama this week to stand by his message of transparency by finally making "tax expenditure" performance reviews a regular part of the OMB's evaluations of government effectiveness.

Simply put, tax expenditures differ from the rest of the tax code in that they focus on encouraging a specific activity or rewarding a particular group of people, rather than on trying to improve the efficiency, simplicity, or fairness of our tax system.Since tax expenditures are usually enacted with primarily non-tax goals in mind (e.g. encouraging investment, encouraging research and development, encouraging home ownership, etc.) it is important that the government make an effort to gauge their effectiveness in achieving those goals.

But despite calls from the GAO, past Congresses, and outside experts in favor of subjecting tax expenditures to regular performance reviews, the most comprehensive performance measure currently in place, the OMB's Program Assessment Rating Tool (PART), continues to focus narrowly on only traditional spending programs.

Encouragingly, language in the President's recently released budget blueprint suggests that a more comprehensive approach for evaluating the government's performance will be used under the Obama Administration (see. pp.39).It's hard to see how anything approaching true comprehensiveness could ignore the hundreds of billions of dollars the government directs toward programs administered via the tax code.Hopefully, the brief language addressing performance reviews that was included in this blueprint is the first signal that an end is coming to the free-ride thus far enjoyed by tax expenditures.

Read the full statement from CTJ

On February 26, President Obama sent to Congress the blueprint for what could be one of the most progressive federal budgets in generations. The budget calls for national health care reform, expanded education funding, a program to reduce global warming, and several improvements in human needs programs. As a new report from Citizens for Tax Justice explains, it would make the tax code considerably more progressive, and close a number of egregious tax loopholes.

There is, however, a flaw in the budget proposal: It does not raise enough revenue to pay for public services. Instead, its net effect is to cut taxes dramatically.

Opponents of the President have attempted to argue that the budget proposal calls for tax increases that could sink the economy, but this complaint is plainly unfounded. President Bush and his allies in Congress were adamant that lower taxes would lead to an explosion of prosperity, and they enacted tax cuts in 2001, 2002, 2003, 2004 and 2006. Some allies of the former President argue that Congress is now insufficiently focused on tax cuts, but this view seems bizarre and incredible given the sad economic facts all around us.

Indeed, one might reasonably conclude that we could safely allow most of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law, without any concern about how this will impact the economy. But President Obama actually proposes to keep most of the Bush tax cuts. Obama's largest proposed tax cut is to re-enact 80 percent of the Bush tax cuts that are scheduled to expire at the end of 2010. Most of this reflects re-enacting the Bush income tax cuts for married couples with incomes below $250,000 and others with incomes below $200,000 (or put another way, for about 98 percent of taxpayers), and permanently reducing the Alternative Minimum Tax (AMT). In addition, Obama proposes to re-enact close to half of the Bush estate tax cut.

On top of re-enacting most of the Bush tax cuts, the Obama budget includes a number of additional tax cuts for families and individuals. (These would be extensions of temporary tax cuts included in the recently passed stimulus law.) It also proposes some questionable business tax cuts.

Partially offsetting its tax-cut proposals, the Obama budget proposes some significant revenue-raising provisions. These include a cap-and-trade program to reduce carbon emissions, a limit on the benefits of itemized deductions for high-bracket taxpayers, and a number of corporate and high-income loophole-closing measures.

Read the Report

Revised March 4, 2009

On Thursday, President Obama sent his budget blueprint to Congress. While many of the details remain to be seen, it's the most progressive budget we've seen in years. It's also a more honest budget than the last administration ever proposed. For example, it doesn't pretend that the Alternative Minimum Tax (AMT) will expand its reach to tens of millions of additional taxpayers (which Congress never allows), and it includes the cost of the Iraq and Afghanistan wars instead of pretending that they will end this year.

It goes a long way towards making the tax system fairer and more progressive. The tax portion of the budget would allow the Bush tax cuts to expire for the very rich and includes revenue-raising provisions that are progressive, environmentally friendly and which, in some cases, would make the tax code simpler.

But the budget blueprint does muddle the cost of extending the Bush tax cuts for all but the top 2 percent of individual taxpayers by using a baseline that assumes the Bush tax cuts have already been made permanent, when in reality they are scheduled to expire at the end of 2010. (In other words, the Obama administration is using a baseline that assumes John McCain won the presidential election and his allies swept both chambers of Congress and were able to enact his tax policies!)

Continuing the Bush tax breaks for 98 percent of taxpayers and providing AMT relief will cost $2.6 trillion over the 10-year budget period. That's a steep price to pay for tax cuts that have not delivered their promised benefits. As the budget moves through Congress, we hope that the goal of long-term deficit reduction will prevail and the Bush tax breaks will be reduced even more. This could mean, for example, further raising the rates on capital gains and scaling back the cut in the estate tax. These changes would help move us towards the day when the government actually collects enough revenue to pay for the services it provides.

In addition to extending a lot of the Bush tax cuts and providing AMT relief, the President's budget would also provide around $770 billion in additional tax breaks targeted to working class people, plus over $70 billion in tax cuts for business. These are offset with several revenue-raising provisions, including a "cap and trade" program to limit carbon emissions, cleaning up the international tax system and eliminating loopholes for energy companies and other corporations.

These provisions are all included in the tax portion of the budget proposal. Other parts of the proposal include other revenue-raisers. For example, the budget includes a new provision that would limit the benefit of itemized deductions so that they could not reduce taxes by more than 28 percent (instead of, say, 35 percent for people rich enough to be affected by the 35 percent income tax rate). This provision would raise revenue to offset new health care spending.

This budget may not be perfect, but it does take several steps to find revenue to invest in our future and support working class families.

Next week, CTJ will provide a more detailed analysis of the President's budget and its tax provisions.

The President's Fiscal Responsibility Summit

Expect to see some drama next week around the federal budget. First, on Monday, President Obama will convene a "Fiscal Responsibility Summit" with Congressional leaders and others to "to send a signal that we are serious" about the long-term deficits faced by the federal government, focusing on entitlement programs. Obama has been sending signals that he is open to any and all ideas about how to get the federal budget back under control once our economy is back on track. Which is alarming, because a lot of ideas floating around out there are incredibly bad.

For one thing, the supporters of the Bush tax cuts still fail to acknowledge that those tax cuts account for about half of the federal debt piled up by the Bush administration before the financial crisis. Pretty much all of the Republican leaders in Congress claim to be deeply concerned about the deficit, but none have waivered in their commitment to the policies that have created much of it.

Another problem is the focus on entitlements. Medicare faces a crisis, which is the crisis of exploding health care costs that we can only contain by reforming the entire health care system. Exploding health care costs are, many analysts have concluded, the single largest cause of long-term federal budget deficits.

But several right-wing policy advocates have made a cottage industry out of claiming that Social Security must be slashed in order to save America. The most notorious is Peter Peterson, the trillionaire who has set up a foundation to promote his version of "fiscal responsibility" and who apparently has been invited to the summit. CTJ director Robert McIntyre lambasted Peterson back in 1994 in a column in the American Prospect, saying, "Along with tax cuts for the rich, he explicitly endorses tax increases for the poor and the middle class as well as sharp reductions in what average families receive from the government."

McIntyre's criticism is mild compared to the assessment progressives give Peterson today. "Peterson, who made his fortune on Wall Street," writes Robert Borosage, "never raised a word about the dangers of hyper-leveraged finance houses gambling other people's money. He never expressed qualms about the leveraged buyout artists who were using debt finance to rip apart companies. He didn't fund an all-out effort to stop Bush from raiding the Social Security surplus to pay for tax cuts for the rich. But now he wants folks headed into retirement who have already prepaid a surplus of $2.5 trillion to cover their Social Security retirements to take a cut or work a few years longer to cover the money squandered on bailing out banks, wars of choice abroad and tax cuts for the few."

The President's Fiscal Year 2010 Budget Proposal

The drama won't end at the President's Fiscal Responsibility Summit. The President is also expected to release the outlines of his budget proposal next week, and it could contain some very important tax proposals. During his presidential campaign, Obama proposed to extend the Bush tax cuts (which mostly expire at the end of 2010) for all taxpayers except those with incomes above $200,000 (or $250,000 for married couples). CTJ calculated that this would essentially mean that the Bush tax cuts are extended for all but the richest 2.5 percent of taxpayers. It would also cost well over a hundred billion dollars a year, and that's before you add the cost of Obama's promised reform of the Alternative Minimum Tax or his other tax proposals. Meanwhile, he also pledged to repeal the Bush tax cut early for those taxpayers with income above the $200,000/$250,000 threshold, but he has hedged on that promise in recent months.

Obama also campaigned on promises to close some tax loopholes (like the carried interest loophole and loopholes enjoyed by the oil and gas industry) and clean up other parts of the tax code. It will be interesting to see what components of his campaign promises are included in his budget proposal.

Interestingly, the administration has stated that it will not engage in the same gimmicks used by the previous administration to conceal the true size of the budget deficit. For example, the Bush administration always assumed that the Alternative Minimum Tax (AMT) would be allowed to extend its reach to tens of millions of additional taxpayers, which of course made the budget appear more balanced than it truly was, even though everyone knew that Congress would enact a "patch" every year to prevent the AMT from expanding its reach. So this budget process may be more transparent than any we've seen in years.