Cover Story

Tax man's terror

The House of Representatives keeps passing tax-cut bills. Will the Senate dig in its heels and keep the tax booty in Washington?

Issue: "Tax man's terror," April 14, 2001

on Capitol Hill-Jay Harris was walking the streets of Capitol Hill like he stepped out of a men's fashion magazine, except for that obnoxious, out-of-place yellow sticker on his suit coat. It read "Kill the Death Tax." April always marks tax-filing time, but this April, Washington is weathering tax-cut season. Mr. Harris came from Durham, N.C., to join a team of 39 people who spread out across the House and Senate office buildings to meet with every single member of Congress for the National Association of Beer Wholesalers. He told WORLD, "Our group is largely made up of family businesses, and the death tax is a major issue for us." Family businesses often buy expensive insurance policies to prevent heavy "death tax" assessments from forcing the sale of their enterprises. The beer boosters are not alone. They have some surprising company. Black Entertainment Television chief Robert L. Johnson led a group of three dozen black business executives in arguing that the "death tax" punishes black entrepreneurs, many of whom have built their wealth from the ground up since the civil-rights advances of the 1960s. With an estate of more than $1 billion, Mr. Johnson estimated he pays about $200,000 to $300,000 in annual insurance premiums, and he said insurance payments equaled "transferring wealth out of the black community to the majority community." The House of Representatives heard the message, passing a bill last week that repealed the "death tax" by a margin of 274-154. The bill attracted 58 Democrats, seven fewer than last year, but President Clinton vetoed that bill. The tax-writing House Ways and Means Committee has churned out a file folder full of tax-cut bills this year, from President Bush's rate cuts, to crumbling the "marriage penalty" and doubling the child tax credit, to estate tax repeal. Many Democrats aren't happy at the prospect of all this potential tax money falling through federal fingers. New York Rep. Charles Rangel, the ranking Democrat of Ways and Means, argued that all these tax cuts add up to something too big. "It's almost like trying to get a big size-12 foot into a size-6 shoe. It just doesn't fit." Democrats are counting on the Senate to slow down the House's momentum. House Republicans aren't mincing words about the upper body's lack of enthusiasm. Ways and Means Committee spokesman Trent Duffy said, "The Senate has spent the last two weeks debating the PAC checks of 535 members of Congress. They ought to spend the next two weeks debating the tax checks of 130 million Americans who pay income taxes." While senators say they favor some tax relief, but not as much as the president, House Republicans say the Senate only has to pass one dollar in tax relief, so the houses can create a conference committee, come to some agreement, and send a bill to the White House. As the action shifts to the Senate, a few key players are emerging:

  • Republican Sens. Lincoln Chafee, Jim Jeffords, and Arlen Specter. All three last week joined Democrats in voting for an amendment to gut the tax cut by $450 billion. The measure passed 53-47, but the vote wasn't final. Mr. Jeffords is demanding more money in the budget for special education before he'll support a larger tax cut. One Democrat, Georgia's Zell Miller, voted against the reduction.
  • Democratic Sen. Tom Daschle. The Senate minority leader has been all over the map. In January he began assailing tax-cut plans as harmful to the economy, and claimed plans to make cuts retroactive were even worse. Then as the economic picture worsened, he told network interviewers that Democrats were all in favor of retroactive relief. Then the Democrats proposed a $300 one-shot rebate plan instead of permanent tax-rate cuts. Before last week's vote, Mr. Daschle sharpened his rhetoric. He accused Republicans of being "harsh and right-wing" and said he had "never seen an administration in all my years which is more intransigent, more unwilling to work with Democrats or across the aisle."
  • President Bush. Meanwhile, Mr. Bush refused to respond in kind. Employing his typical, diplomatic tone, he declared in the second press conference of his tenure that he appreciated how "Tom Daschle, for example, talked about immediate tax relief or immediate rebates, plus reducing rates permanently. We just need to reduce more rates than the ones he suggested." He joked that no one should "misunderestimate" the administration's resolve to get his tax cut passed. Bush aides know that tax cuts were an important part of securing the Republican base last year in distinguishing their candidate's approach from his father's read-my-lips reversals on taxes.
  • Trigger-happy senators. Some senators have argued against quick implementation of the Bush tax cut by proposing a "trigger" mechanism that would raise taxes if surpluses vanished. But they are now listening to the advice of former Republican Senator Warren Rudman, who warns of his experience with the spending-cut triggers included in the Gramm-Rudman law in the mid-1980s. While he didn't want to criticize current trigger proposals, he declared "it's easy to mess around with triggers because people can fuss around with the numbers, they can ignore them. I mean, there was no criminal penalty for not pulling the trigger." Richard Kogan of the liberal Center for Budget and Policy Priorities counsels against the tax cut and trigger combination: "It is difficult for Congress to repeal tax cuts or mandatory tax increases once they have been enacted." He proposes pouring the surplus into a "budget reserve."

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