Congress Passes Spending and Tax Cuts Before Going on Vacation

Both the House and the Senate passed bills affecting the federal budget at the end of last week. Making either of those bills, or a combination of both, into law may turn out to be more difficult that it seems. President Bush has threatened to veto at least the Senate bill, according to the Associated Press, because it raises taxes on oil companies.


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The Senate passed 64 – 33, a $60 billion bill that preserves tax cuts that had been set to expire, provides Alternative Minimum Tax (AMT) relief and provides tax-credits for deposits into retirement accounts made by low-income individuals and couples, CNN reports. Among the tax cuts being extended are deductions for state and local sales tax and tuition. In addition, a new tax deduction for charitable donations would be allowed for taxpayers filing non-itemized returns. Perhaps the most expensive provision of the Senate bill is the AMT relief, which would add estimated $28.8 billion over five years by allowing an additional 17 million taxpayers to pay only what they owe under the regular income tax system not the larger tax bill they would otherwise owe under the AMT according to CNN. The Associated Press and Bloomberg lower the number of taxpayers affected to 14 million but increases the amount they would save to almost $30 billion next year. At the other end of the spectrum is the provision allowing taxpayers who do not file itemized returns to deduct cash donations over $210 for individuals or $420 for couples. The estimated reduction in revenue of that provision, CNN reports, is only estimated at $2 million of five years.

“I call this the ‘Tax Increase Prevention Act,” Senator Rick Santorum (R-PA) told the Associated Press.

Taxpayers in general may not see increases in their tax bill, but that does not mean there are no increases in the Senate’s action. Indeed, a change in accounting methods is projected to cost the largest oil companies $4.3 billion in taxes according to the Associated Press. It may also cost any bill containing it the possibility of becoming law because the White House has already threatened to veto it. The bill also fills in some of the details of the proposed Gulf Opportunity Zone offering $7 billion in assistance to businesses and individuals affected by this fall’s hurricanes.

Meanwhile, the House budget action, which passed by only two votes at 217 – 215, focuses on spending cuts rather than tax cuts, slicing nearly $50 billion from the deficit in five years according to the Associated Press. Among the most potentially controversial House cuts are $12 billion from Medicaid over the next five years and a $14 billion reduction to student loans, Reuters reports. The House measure also contains funds for those affected by Hurricanes Katrina and Rita in the form of $2.5 billion in extended Medicare benefits and $1 billion in new spending to help low-income taxpayers pay their heating bills over the coming winter, according to Reuters. In order to get the measure passed, House Republicans were forced to eliminate plans to allow oil exploration in the Arctic and Gulf of Mexico, deny free school lunches to 40,000 children whose parents would lose their food stamp eligibility and make low-income families receiving non-cash benefits for child care, transportation or housing ineligible for food stamps, the Associated Press reports.

As challenging as it was to get these bills passed, a greater challenge may lie ahead. Although both houses of Congress attempted to signal their ability to come together in voting to give themselves a cost of living pay increase of $3,100, they postponed work on tax and spending cuts until after the 2-week Thanksgiving break.

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