Senate Debate on $1.3-Trillion Tax Cut Begins

The Senate opened debate Thursday on the proposed $1.35-trillion, 11-year tax cut with a show of strength for President Bush’s allies, as GOP leaders beat back Democratic efforts to whittle away at the bill’s benefits for upper-income taxpayers.

The Senate rejected an amendment that would have scaled back cuts in tax rates for upper-income taxpayers in order to speed up the bill’s relief for married couples. The Senate also defeated an amendment to scale back estate tax breaks for the wealthy and channel more relief to middle-income families paying college tuition.

Opponents of the amendments said such major changes in the bill, which earlier this week was approved by a bipartisan majority of the Senate Finance Committee, would imperil its ability to clear a Senate evenly divided between the two parties.

The defeat of the amendments boded well for the ability of GOP leaders to keep the bill intact and to hold together a fragile bipartisan coalition to pass the bill early next week, perhaps as soon as Monday.

But the debate highlighted the fact that the Senate bill would delay for years to come some of the most popular tax breaks of the Bush agenda, such as easing the so-called marriage penalty.

Hoping for a Deal by Memorial Day

The debate also underscored the trade-offs lawmakers have had to make to squeeze Bush’s $1.6-trillion tax cut request into the $1.35-trillion ceiling that Congress has budgeted. The reduction in Bush’s plan was approved under pressure from moderates of both parties who believe the president’s tax plan was too big.

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said many tax cuts had to be postponed to keep the price tag down.

“We can’t do everything at the same time,” added Sen. Max Baucus of Montana, the ranking Democrat on the Finance Committee who joined Grassley in writing the bill. “We want to have everything, but life is choices.”

GOP congressional leaders hope the Senate and House will reach agreement on competing details of the tax cut in time to send it to Bush by Memorial Day for his signature.

In one key disagreement, the House earlier this year passed a bill embracing Bush’s plan to cut the top income tax rate to 33%, from 39.6%. The Senate bill would drop the top rate to 36%. Some House Republicans remain adamant about bringing the rate down closer to Bush’s proposal.

Across-the-board cuts in income tax rates is the centerpiece of the White House plan.

The Senate bill also includes provisions that would reduce the estate tax over a decade and repeal it in 2011; gradually increase the $500-per-child tax credit; increase the amount of money people can put into tax-deferred Individual Retirement Accounts; and provide new tax breaks for education, including a $5,000 deduction for college tuition expenses.

The House previously has passed bills approving similar versions of many of these proposals.

In Thursday’s Senate debate, the amendment to speed up tax relief for married couples was an important test of support for the bill as written by the Finance Committee. That’s because efforts to reduce what lawmakers refer to as the marriage penalty has enjoyed broad support from members of both parties.

Costly Quirk in Tax Code

The penalty arises from a quirk in the tax code that forces many couples to pay more in taxes if they get married than they would have owed if they had remained single and filed separately.

The bill before the Senate would ease the tax burden on married people by expanding the amount of income that is taxed at the 15% rate and by increasing the standard deduction for married couples. However, neither change would take effect until 2009.

Lawmakers from both parties sought to speed up the relief, arguing that it was unduly given a back seat to other tax breaks.

Sen. Kent Conrad (D-N.D.) proposed making the tax cuts for married couples effective in 2002--and offsetting the cost by cutting less from the top income tax rate.

“We have to make a decision . . . [about] whose tax relief ought to come first,” said Sen. Tim Johnson (D-S.D.). “To delay tax relief on the marriage penalty in order to quickly reduce taxes on the wealthiest . . . doesn’t make a lot of sense.”

But the amendment was rejected, 56 to 44, with eight Democrats joining 48 Republicans in opposing the Democratic initiative.

The delay in the marriage penalty provision also troubled some Republicans. Sen. Kay Bailey Hutchison of Texas proposed another amendment to speed up marriage penalty relief--but offset the cost by scaling back other tax breaks for education. Her amendment was rejected, 73 to 27.

Democrats also took aim at the phasing out of the estate tax, which they said would mostly benefit the super wealthy. Sen. Charles E. Schumer of New York proposed an amendment that would increase the college tuition deduction from $5,000 to $12,000, and offset the cost by scaling back inheritance tax relief for estates worth more than $3 million.

“This bill is about choices,” Schumer said. “Do you believe a family making $50,000 deserves help with tuition before the estates worth over $3 million get a rate drop?”

But critics of the estate tax said the amendment would undercut a painstakingly crafted compromise to phase out the tax a full decade from now. The amendment was rejected, 55 to 43, with seven Democrats joining most Republicans in opposition.

Proponents of repealing the estate tax viewed the vote as a bellwether indicating that the estate tax phase-out would remain in the bill.