- The Washington Times - Wednesday, March 9, 2005

“Four More Years” was 2004’s political mantra for President Bush’s supporters. And with his re-election, the gritty, hard-fought legislative battles to reduce taxes during his first term now seem more secure. As Congress formulates a fiscal blueprint, it looks like this year’s tax agenda will temporarily extend some past victories, and will also guarantee a lively debate on taxes in the years ahead.

House and Senate fiscal blueprints being considered today have big implications for the “tax permanency” debate. Mr. Bush’s first tax-reduction victories in 2001 — including the individual rate reductions — “sunset” or expire after 10 years.

Congress could obviously pass legislation removing the sunset, making the tax cuts permanent, putting a positive spin on the line about the certainty of death and taxes. But there’s a catch. While the House has the votes to make such a change, in the Senate, tax legislation done outside the context of the budget process probably requires 60 votes — a bridge too far given the upper body’s current political makeup.

The budget resolution, however, offers a kind of “procedural steroid” known as reconciliation that provides a solution of sorts to tax-cut proponents. The budget resolution can provide (and this one will) special instructions to the congressional tax-writing committees to produce separate legislation that when brought to the Senate floor receives expedited procedures; the most significant is the removal of the right to filibuster. This reconciliation bill requires only a simple majority (51 votes) for passage.

But before tax permanency fans pop champagne corks there’s another little problem in the procedural brew. The 51-vote threshold only applies to policies within the so-called budget window — in this case 2006-10. That means any tax cuts extended beyond 2010 are subject to a point of order on the Senate floor and therefore would require — you guessed it — 60 votes to waive. It is this limited window that led Republicans to reject using the reconciliation process for Social Security reform.

Lacking the ability to extend any tax cuts beyond 2010 without 60 votes in the Senate, what can lawmakers do? Actually there are several important extensions, vital for economic planning purposes that can and should be done — as well as some interesting House tactics under consideration.

Existing tax law includes a cacophony of expiration dates. For example, the small business expensing provisions and the capital gains and dividend rate reductions expire before 2010 (expensing expires in 2007 and capital gains and dividend reductions expire in 2008). Protection from the Alternative Minimum Tax (AMT) expires this year, as do some popular business and investment tax credits.

One major obstacle in reaching a House-Senate agreement on the budget turns on the amount of tax cuts included in reconciliation. The Senate wants to protect around $70 billion, meaning tax cuts up to that amount could pass with 51 votes. The House, in a surprise move, decided on a lower number, instructing the Ways and Means Committee to procedurally shelter only about $45 billion out of more than $100 billion in proposed reductions in a reconciliation bill — a clear message of its displeasure with the Senate applying so-called PAYGO rules (or the requirement for offsets) for tax cuts over a certain level.

Hammering out an agreement on a single tax reconciliation number in a House/Senate Conference Committee is critical for the budget process to take effect. So, determining which tax cuts require procedural protection and which ones are popular enough on their own to garner 60 votes in the Senate will require skillful legislative artistry and calculation.

If the current House position prevails, it may set the stage for two tax bills this year. One could be done under the reconciliation process focusing on tax cuts that are guaranteed filibuster candidates in the Senate (like capital gains and dividend reductions). Another would extend a mix of extremely popular tax changes (like AMT relief or widely supported expiring tax credits) outside of reconciliation and dare Democrats to filibuster.

Political realism probably means Congress will extend as many tax cuts as possible through the reconciliation process and probe the boundaries of what other measures can garner 60 votes in the Senate. This sets the stage for some bigger decisions next year about further extensions and broader tax reform. Whoever said taxes and matters of eternity would always be with us may have been on to something.

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