Urban Aid Turns Into a Tiny Engine Leading a ‘Big Tax Train’

It started out as Washington’s response to the Los Angeles riots--an urban aid bill designed to create incentives for businesses to open shop and create jobs in South Los Angeles and other inner cities.

But as the legislation has moved through Congress, it has taken on a much different cast. The urban aid bill now calls for the repeal of a luxury tax on expensive boats, private aircraft, jewelry and other finery; new individual retirement account benefits for affluent Americans and a wide array of special tax breaks for real estate developers and other business interests.

The original inner-city “enterprise zones” plan is still in the legislation, but the bill that the Senate is expected to approve as early as today is freighted with tax provisions that have little to do with urban assistance. In fact, only $4.6 billion of the bill’s $31.5-billion price tag over five years is devoted to urban aid, according to the Senate Finance Committee.

“Suddenly, urban aid, which was the reason for this bill, is now just a little engine up at the front of this big tax train,” complains House Budget Committee Chairman Leon E. Panetta, (D-Carmel Valley).

“You’ve got the good, the bad and the ugly in this bill,” adds Daniel Mitchell, a tax expert at the Heritage Foundation, a conservative think tank in Washington. “They put everything in there.”

What’s more, economists and budget analysts argue that the bill will ultimately increase the size of the federal deficit while doing little to stimulate the nation’s sluggish economy. “It won’t make much difference for the economy,” observes David Wyss, an economic forecaster with DRI-McGraw Hill, an economic forecasting firm in Lexington, Mass.

But such criticism hasn’t been enough to derail the urban aid bill, which has been transformed into the first--and only--major tax bill of the year that actually seems likely to be enacted into law. The bill has gained surprisingly strong bipartisan support and powerful legislative momentum in the midst of a presidential campaign.

That is largely because, as it is now structured, it offers something for both the Bush Administration and the Democratic-controlled Congress.

For the Bush Administration, the urban aid legislation is one last chance before the November election to try to push for passage of at least part of President Bush’s economic growth package, first rejected by Congress last spring. Now, six of the seven key provisions in Bush’s original growth package are included in the urban aid plan, including such items as tax credits for first-time home buyers, special breaks for real estate developers, enhanced individual retirement account benefits, incentives for business investments and modifications in other corporate taxes.

For the beleaguered White House, passage of so much of Bush’s original economic package will give the President an economic achievement to trumpet in a campaign in which he is being pilloried for inaction on the economic front.

To get so much of his tax package through Congress, however, Bush had to compromise by agreeing not to push hard for a capital gains tax cut, the centerpiece of his original economic plan.

With a partisan battle over capital gains out of the way, other tax provisions that had been bottled up for months quickly began to move through both the House and the Senate.