More tax relief ahead

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Congressional Republicans and President Bush slashed taxes four times in the last four years — a fiscal-policy version of the Ellen Burstyn-Alan Alda 1978 flick, "Same Time Next Year." But from the standpoint of the American economy, these tax cuts were not theatrics. The gross domestic product, jobs and even revenue flows into the Treasury all benefited from these pro-growth policies.

Tax writers' focus so far this year has been a bit more subdued, drafting revenue titles of larger measures like the highway bill and energy legislation. But that's changing. It's year five of the Bush presidency, and tax policy is about to take center stage again — a pro-growth encore of sorts. Lawmakers could pass as many as four tax bills this year before the curtain closes on the first session of the 109th Congress. Measures — including eliminating the death tax, stretching out the 15 percent rate on capital gains and dividends, extending popular tax credits and adding incentives for retirement savings and long-term health care — are all high on the congressional marquee.

First up is the debate on permanently ending the death tax. When the Senate returns next week, it immediately turns to a procedural motion to proceed to the House version of death tax repeal. If the Senate fails to garner 60 votes — which, unfortunately, most expect will be the case — lawmakers will explore various compromises short of permanent repeal. Sen. Jon Kyl of Arizona — a member of the Senate Finance Committee and the Republican leadership — is probing the boundaries of a compromise that could overcome a filibuster.

House Republican sources, however, say they have little appetite for a deal at this point. "We've passed permanent death tax repeal multiple times already," one Republican leadership aide told me. "I think that's the House's position; we don't want to water it down." But if the Senate demonstrates it lacks the votes, compromise becomes the only way to avoid a return of the death tax, which has been gradually phasing out each year but is scheduled to snap back to its original higher level after 2010.

While the final resolution of the death tax may slip into next year, the tax portion of so-called budget reconciliation process will almost certainly pass both bodies and get signed into law. It's a poignant example of how congressional procedure shapes policy.

The tax portion of the reconciliation was conceived earlier this year when the House and Senate agreed on the 2006 Fiscal Year Budget Conference Report. The budget authorizes up to $70 billion (over five years) in additional tax cuts with so-called reconciliation procedural protections. This process guarantees that the Senate can consider a tax bill with up to $70 billion in cuts without the threat of a filibuster.

Leadership sources tell me choosing the $70 billion figure almost guarantees two more tax bills this year — one using the reconciliation process and the other outside of these procedural protections. More controversial matters — like extending the 15 percent rate on dividends and capital gains from 2008 to 2010, which probably could not garner 60 votes in the Senate — will likely get included in the reconciliation bill. But other more politically popular provisions, like extending the R&D incentives or the welfare-to-work tax credit, will find a home in another tax vehicle outside reconciliation.

The House will include a host of politically popular measures in this "non-reconciliation" tax bill and dare Democrats in the Senate to say "no." If the budget had called for a higher tax number under reconciliation, many more items would have been included in a single reconciliation bill. But procedural maneuvering by the House earlier this year will likely produce these twin tax bills.

Finally, the issue of Social Security will likely play out at least in the House this fall, creating yet another vehicle for potential tax changes on everything ranging from new savings incentives to long-term care. House Ways and Means Committee Chairman Bill Thomas has been quietly crafting a bill that could represent a major victory on Social Security reform and also includes some popular tax provisions.

Tax-policy debate promises to play a major role on the congressional agenda this fall. Lawmakers won't have time to catch any of their favorite Alan Alda reruns, but they will pass a series of pro-growth tax policies to help achieve continued economic growth and create jobs. That deserves a standing ovation.