The Washington Post
Friday 07 December 2007
Middle-class relief from alternative taxation's bite passed with no revenue or spending offsets.
Eleven months after adopting stringent new rules aimed at reining in the federal deficit, the Senate last night shrugged off its pledge of fiscal rectitude and overwhelmingly approved a measure to spare millions of families from the growing reach of the alternative minimum tax without providing an offsetting tax increase.
The Senate's 88 to 5 vote blew a $50 billion hole in the Democrats' promise not to pass any spending or tax measure that would add to the deficit. The outcome brought a furious response from conservative "Blue Dog" Democrats in the House, who assailed the Senate and vowed to block passage of any tax measure that would add a cent to the federal debt.
"We run for reelection every two years. They run every six years," fumed Rep. Mike Ross (D-Ark.). "Don't try to tell me the Senate can't take a tough vote."
Despite the heavy toll the AMT exacts on some middle-class taxpayers, Congress has been loath to repeal it outright because that would leave a trillion-dollar hole in the federal budget over 10 years. Instead, successive Congresses have opted for one-year "patches" that hide the long-term cost. The Senate-passed bill would spare the middle-class households touched by the AMT an average of $2,000-per-family increase on 2007 income taxes and would ensure that refunds of as much as $75 billion would be distributed without delay.
The AMT was designed in the 1960s to prevent the very rich from using deductions, credits and other shelters to avoid paying taxes, but its income thresholds did not rise with inflation. Taxpayers are not hit by the AMT based on income alone. The number and type of deductions and credits they take also help determine whether they will be forced into the alternative taxation system. Because of rising incomes, the tax's bite is expected to expand to more than 30 million households in 2010. Last year, the AMT affected 3.8 million mostly well-off households.
Senate Democratic leaders said that they had done all they could to preserve their much-ballyhooed pay-as-you-go - or "paygo" - rule, which says that any new entitlement spending or tax cuts would have to be offset by tax increases or spending cuts.
Once a centerpiece of Democratic claims to the mantle of fiscal discipline, paygo was ultimately steamrollered by the AMT, which could hit 23 million families this year if Congress does not act.
"We want everyone to know we have tried every alternative possible," Senate Majority Leader Harry M. Reid (D-Nev.) said with a sigh after a House-passed AMT bill, to be paid for largely with tax increases on wealthy Wall Street titans, fell to a Republican filibuster. Just 46 senators, all Democrats, voted to cut off debate on the measure, 14 short of the 60 needed.
For some Democrats, especially the Blue Dogs, the blow to paygo last night was particularly bitter. For years, Democrats tried and failed to force GOP leaders in Congress to adopt pay-as-you-go rules, in large part to limit wave after wave of tax cuts that they said were piling government debt onto future generations.
Republicans always resisted such strictures. And this year, as Democrats struggled to pay for priority measures on health care, student loans and agriculture with tax increases and spending cuts that opened them up to a barrage of Republican political attacks, they have seen why.
"The politics have been very bad," said Rep. John Tanner (D-Tenn.). "But that's the problem with politics: Politicians giving the voters everything they want without paying for it. That's the easy way out. That's how you become a Third World country."
With paygo breached, Republicans were almost gleeful. "They had painted themselves into a corner," said Sen. John Thune (S.D.). "That's a huge concession on their part, completely repudiating one of their core principles."
And both sides predicted that a breach this big could create a flood, as lawmakers argue that their pet legislation is just as deserving of a waiver from the strictures of paygo.
"If we waive paygo on this, it will open the door for more financial - bordering on criminal - irresponsibility," Tanner said.
"Tax cuts may be back on the table," said Grover Norquist, president of the anti-tax Americans for Tax Reform.
Some House Democrats are not ready to give up just yet. The House-passed AMT "patch" would have been paid for mainly by forcing managers of private equity "buyout" firms and hedge funds to pay ordinary income tax rates on the millions of dollars they earn each year. Currently, much of those earnings are counted as capital gains and taxed at 15 percent, rather than at the 35 percent income tax rate paid by the nation's highest earners. Wall Street launched a major lobbying campaign to defeat that tax increase.
House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) scrambled last night to come up with a new set of tax increases and loophole closures that could win Republican support. But Rep. Jim McCrery (La.), the tax-writing panel's senior Republican, said Rangel need not bother. "It's not going to happen. It's not going anywhere," he said.
That could leave the fate of paygo to House Speaker Nancy Pelosi (D-Calif.). Blue Dog leaders said the speaker personally pledged to them on Wednesday that she will not bring any bill to the House floor that would add to the deficit. If she does, 31 Blue Dog Democrats have vowed to vote against the measure. Rep. Allen Boyd (D-Fla.), a leading Blue Dog, even said that he would rather see the alternative minimum tax balloon this year then see his party bend on its vow of fiscal discipline.
But if Pelosi bowed to pressure and brought an unpaid-for AMT bill to the floor, it would almost certainly pass over such opposition, House Democratic leaders conceded. Overwhelming support from Republicans, coupled with Democratic defections, would probably get the bill to President Bush's desk for a promised signature.
"The House has been much firmer on this all year than the Senate, and it may still insist on offsets. But the end-of-the-session pressure is to going to be there to say Merry Christmas and get out of town without paying for anything," lamented Robert L. Bixby, executive director of the Concord Coalition, a budget deficit watchdog. "It's very disappointing."
It's the Economy, Stupid - But Not Just the Current Slowdown
By Robert B. Reich
The American Prospect
Wednesday 05 December 2007
Most Americans are still not prospering in the global economy - addressing this means thinking bigger than tax cuts or spending increases.
According to new polls, the economy is the number 1 issue for American voters. But that's not just because the economy is slowing and mortgages are harder to come by. The real reason is middle-class families have exhausted the coping mechanisms they've used for over three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are actually lower than they were then; the income of a young man in his 30s is now 12 percent below that of a man his age three decades ago.
The first coping mechanism was moving more women into paid work. The percent of working mothers with school-age children has almost doubled since 1970 - from 38 percent to about 70 percent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. I call these families DINS - double income, no sex.
When families couldn't paddle any harder, we started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared to any other advanced nation we're veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.
As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began taking equity out of our homes, big time. But now that home prices are sinking for the first time in decades, this final coping mechanism no longer keeps us afloat. As Moody's reported last week, defaults on home equity loans have surged to the highest level this decade.
In short, it's the economy, stupid. But not just the current slowdown. The underlying problem began around 1970. And any presidential candidate seeking to address it will have to think bigger than stimulating the economy with tax cuts or spending increases. The fact is, most Americans are still not prospering in the high-tech, global economy that emerged three decades ago. Almost all the benefits of economic growth since then have gone to a relatively small number of people at the very top. The candidate who acknowledges this and comes up with ways to truly spread prosperity will have a good chance of winning over America's large and largely-anxious middle class.
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