The battle over tax cuts continues today in the Senate as Republicans fight to get a bigger chunk of President Bush's proposal into the budget. The GOP is also trying to change the way Congress keeps "score" of taxes.
The situation seemed settled when the Senate voted Tuesday to include $350billion in tax cuts in its budget resolution -- although even that
surprise move left many wondering whatthe final tax bill will look like, because this allotment is far short of the$626 billion the Senate had approved on Friday. (Friday's resolution sliced $100 billion off the president's requested $726 billion and earmarked it for costs associated with the war in Iraq.)
Republicans have until 4 p.m. today to attach an amendment to the resolutionin an effort to increase the amount of the budget devoted to tax cuts. "It'spretty unlikely any effort like that would succeed, though," says TomOschenschlager, a tax partner with Grant Thornton in Washington. "Thefact that yesterday's resolution was for half of what President Bush askedfor is pretty meaningful, since about half of his package was devoted to thedividend tax cut."
Because of the various mechanics of the legislative system, it's pivotal to the Republicans that as much of the desired tax cut gets into the budget. That's largely why the president's huge bill is being debated now, as part of the budget, rather than as a separate bill.
Any bill that will affect the federal budget more than 10 years needs 60votes in the Senate to pass. (A budget resolution needs only a simplemajority to pass.) While the Republicans have a majority in both houses,they don't hold quite that much sway in the Senate. That's why PresidentBush's tax cut of 2001 is scheduled to expire in 2010; the administrationdidn't have the votes in the Senate to pass a permanent tax cut. Theadministration is currently pushing to make those cuts permanent in additionto the proposed $726 billion in new tax cuts.
Anything that doesn't get into the budget will face even greater oppositionas its own tax bill.
Another tactic the Republicans are using to get more bang for every buck inthe budget for tax cuts is to change how this tax bill will be "scored."
The Congressional Budget Office scores each tax bill -- or determines whatsort of impact the bill will have on the economy. Historically, such billsare always evaluated with a "static score." In such a method, economistspredict how the bill will affect the economy in the future based on theeconomy today.
But the Republicans are pushing hard for what's called "dynamic scoring,"which tries to take the secondary effect of the tax cut into account. Forexample, an economist may assume that eliminating the tax and dividends willspur increased spending. In turn, corporate profits will increase, meaninggreater tax revenue for the federal government.
"Dynamic scoring tries to take into account the secondary effect of the taxcut," Oschenschlager says. "The problem is that there's a lot ofdisagreement among economists as to how to do it properly. It involves a lotof guesswork."
Economists are notorious for disagreeing on theory and process, but thattendency is particularly evident regarding dynamic scoring.
It's worth noting that during New Mexico Republican Pete Domenici's 22-yeartenure as leader of the Senate's budget committee, he opposed dynamic scoring,primarily because of the vagaries and uncertainties involved.
Now, though, Oklahoma Republican Don Nickles -- "who never met a tax cut hedidn't like," Oschenschlager says -- is at the helm of the Senate BudgetCommittee and pushing for dynamic scoring. Domenici now heads the Senate'senergy committee.