The Tech - Online EditionMIT's oldest and largest
newspaper & the first
newspaper published
on the web
Boston Weather: 36.0°F | Fair

Congress Opens Debate About Details of Upcoming Tax Break

By Eric Pianin
THE WASHINGTON POST -- WASHINGTON

Congress Tuesday opened a politically significant week of debate over taxes as Republicans pushed to put a bill eliminating the “marriage penalty” on President Clinton’s desk before the Republican National Convention late this month.

With huge budget surpluses looming, Democrats have joined with Republicans in calling for major tax relief this year. But the two sides can’t agree on the size or shape of new legislation, and President Clinton has threatened to veto the Republicans’ plan to cut taxes for married people unless the GOP accepts his plan to add a prescription drug benefit to the Medicare program.

The Senate formally kicked off the tax debate by taking up a House-passed measure to phase out the estate tax over the next decade; House members will also begin considering a plan to permit bigger contributions to tax-favored retirement accounts like 401(k) plans. But Republicans are focusing most of their energy on passing the marriage tax relief bill in the House and Senate before the weekend.

By granting the marriage penalty tax bill special immunity from filibusters, Republican leaders have essentially greased the skids for final passage of the legislation. They’re attempting to time passage so they can put maximum pressure on the president to sign it or make political hay when the GOP convention convenes in three weeks.

“The president will have to say ’I do’ or ’I don’t’ before the (GOP) convention,” said Trent Duffy, a spokesman for House Ways and Means Committee Chairman Bill Archer, R-Texas.

Both the House and Senate bills address a quirk in the tax code that results in many two-income couples paying a bigger tax bill than if they were single and filing separately. But the measures go far beyond that, providing substantial tax breaks to all income groups, with upper income couples enjoying the largest benefit.

The Senate bill -- substantially larger than the House-passed version -- would cut taxes on married couples by $248 billion over 10 years. The measure would increase the standard deduction for married couples filing jointly to twice the standard deduction for single taxpayers; expand the 15 percent and 28 percent income tax brackets for married couples, and makes changes in the Earned Income Tax Credit and Alternative Minimum Tax that benefits couples with children.

The other GOP-crafted bill would gradually repeal the federal tax levied on an estate, mostly by cutting the rates. Already, 98 percent of decedents avoid taxes altogether because the first $675,000 of an estate is exempt from taxation -- an exemption scheduled to rise to $1 million by 2006. Only 47,500 estates paid any estate tax in 1998, the most recent year for which figures are available, and about half of the money raised by the estate tax was paid by the fewer than 3,000 estates worth more than $5 million.

The bill’s slow phase-in would help keep its cost relatively low -- $105 billion over 10 years. When fully implemented, federal tax revenue would decline by an estimated $50 billion a year, which has led Clinton to criticize the bill as giving “the largest estates a windfall.”

The House approved the measure, 279 to 136 on June 9, with 65 Democrats crossing party lines to vote for one of the Republicans’ top legislative priorities. Nine Senate Democrats have co-sponsored a bill drafted by Sen. Jon Kyl, R-Ariz., that is similar to the Republican measure.

Republicans have attacked the estate tax as pernicious and “morally indefensible,” saying that it has forced families to sell off their farms and small businesses and effectively imposes double taxation on the holdings of successful people that are passed on.

Democrats are pushing for consideration of an alternative that would gradually increase the tax exemption for the estates of couples to $4 million by 2009 and raise the exemption for family-owned farms and small businesses to $8 million over the same period. But they say they don’t want to let the wealthiest taxpayers off the hook and are also threatening delaying tactics.