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Congress' 'Solution' to Tax-Cut Impasse May Spawn Problems

The complex compromise could make reaching a permanent solution on tax cuts more difficult.

Congress has arrived at a very messy solution for a very messy problem.

Instead of compromising on a single number to include in the budget, theSenate and House of Representatives have agreed to proceed in creating theirown tax bills -- with different figures.

"It's just crazy; this has never happened before," says Gary Bass, presidentof the budget watchdog group

OMB Watch."And it's far more complex than what's in the papers."

The goal of the

budget resolutionprocess is to come up with a number that goes into the federal budget indicating how much the government can spend on any given area. In this case, the budget point of contention is how much to spend on tax cuts.

Typically, the House and the Senate each come up with a figure, then go into"conference," where they hash out an agreement and emerge with a singlefigure that then gets included in the budget. The budget resolution doesn'trequire the president's signature -- but it does determine how much thefederal government can spend.

This year, though, House Republicans voted in favor of $726 billion in taxcuts, while the Senate said no more than $350 billion should be spent on taxcuts. (See

this story for news onthe vote.) This move effectively wiped out the funding for the cornerstone ofPresident Bush's tax plan -- eliminating the tax on dividends.

But instead of going into conference and emerging with an agreement, theHouse and Senate essentially agreed to disagree. Each will draw up its owntax bill according to what it sees fit.

Clearly, though, new rules were needed for this unprecedented (andultimately untenable) agreement reached late Wednesday.

Let's assume that the Senate sticks with its $350 billion plan and draws upa tax bill accordingly. This isn't necessarily a shoo-in -- there are manyfiscal conservatives, such as Arizona Republican John McCain, who think theright amount of tax cuts is zero. If the situation in Iraq continues to bepricey and if the economy still stagnates, such players may agitate for anumber even lower than $350 billion.

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Meanwhile, the House will likely create a tax bill that spends at least $550billion.

Typically, any bills -- such as tax bills -- that affect federal spendingneed 60 votes in the Senate to pass, and a three-fifths majority in the House. But getting the money

in

the budget requires just a simple majority. Inother words, it's much easier to push through tax cuts during the budgetresolution process than to pass a separate tax bill later -- hence the House'sbig push to include as much of the president's tax cut proposal as possible.

But the agreement reached last night was that any tax cuts in excess of $350billion would be subject to

normal Senate rules

. That means that under this new, bizarre arrangement, if the House comes back with a taxbill of $550 billion, it will require 60 votes in the Senate to pass. Andthat's not likely, given the Senate's steadfast adherence to the lower $350billion figure.

So the Senate will have two options: Either vote it down outright (again,the 41 votes needed to defeat it shouldn't be a stretch) or amend it down to$350 billion.

The House can then either accept the Senate bill or start over with anotherbill of its own.

There's a growing group of moderate Republicans in the House, though, whoare in favor of a lower tax-cut package. Delaware Republican Mike Castleeven went as far as to issue a letter, signed by 15 other House Republicans,backing a $350 billion package.

The House generally votes as a giant block, although the divide is rapidlybecoming more apparent.

Not enough, though, to actually foster a true agreement.

"This process is almost unintelligible to the public," Bass says. "And itdefies the notion of compromise."