Week Ending May 14

TheWeekInCongress.com

Week Ending May 14, 2004

HR 4275 Make permanent the 10% Tax Bracket

BRIEF

The bill amends the IRS Code to make permanent the increased upper limit amount of earning at which taxpayers pay taxes at the ten percent rate.

Married taxpayers filing joint tax returns and surviving spouses qualify at an earning level of $14,000 yearly. Heads of household qualify at $10,000 and unmarried taxpayers or marrieds filing separately qualify at $7,000. The bill would allow an inflation adjustment based on the difference from the Consumer Price Index for 2002 for married taxpayers filing joint tax returns, surviving spouses, and heads of household beginning after 2003.

Concerned about adding to the deficit the Democrat substitute would pay on the cost in loss revenue from HR 4275 by imposing a 1.9% tax on incomes of $1 million for married couples and $500,000 for single taxpayers.

Sponsor: Representative Pete Sessions (R-TX)

Vote: Passed House 344-76, 13 not voting (RC-170)

The Tanner substitute failed 190-227, 16 not voting (RC 169)

Cost to the taxpayer: $218 billion in lost tax revenue.

MORE INFORMATION

The bill would make permanent a reduction from 15% to 10% the tax assessed on lower income Americans. The original tax break made law in 2001 would begin to return to the original 15% over the next 5 years. Representative Paul Ryan (R-WI) explained the bills’ benefits and the consequences if it is not passed; “If H.R. 4275 is not enacted, 73 million tax filers will see a tax increase starting next year. The effect will be particularly acute after 2010 when 123 million tax filers will see an average annual tax increase of $500.”

He continued, “It is worth noting that more than 20 million of these returns are low-income taxpayers and families who have all of their income taxed at this lower 10 percent rate. The public deserves a solid, dependable tax code that provides incentives and lets working people keep their money for their own needs. The 10 percent bracket provides such an incentive, one we can and should make permanent by passing this legislation.”

Opposition to the bill came not only because the break was not extended to middleclass taxpayers as some Democrats would have liked but because the continued reduction in revenue to the US Treasury will add to the deficit. Representative Xavier Becerra (D-CA) referred to the Republican approach to the matter as ‘irrational exuberance’, “That irrational exuberance is now driving much of what we have seen on the floor this year. A quick example: this year alone in this House we have…passed marriage penalty tax relief, a kernel of a good idea, unpaid for, over $100 billion; the extension that my colleague from Wisconsin mentioned of AMT relief for 1 year only, that will cost close to $18 billion to make sure those Americans don't fall into the AMT. Good, but only 1 year…A flexible spending plan that was on the floor yesterday for debate, which is, again, a good idea, to allow Americans who have health care costs to be able to have a pot of money that they can extend over to the next year if they did not use it up. A great idea. Cost, close to $10 billion, unpaid for.” Mr. Becerra continued, “Extension of the 10 percent tax bracket that we are debating today, (will cost) about $220 billion, (and is) unpaid for. The child tax credit extension done a few weeks back, again a good idea for families that have children. $161 billion, unpaid for. Total, more than $500 billion this year alone in unpaid-for tax cuts, most of which have a good idea behind them. To add to the $400 billion-plus deficit for this year alone, which adds to…the more than $3 trillion debt that the Nation owes as a whole."

But Rep. Ryan countered Mr. Becerra’s comments with the Republican philosophy that has driven many tax and spending decisions since George W. Bush took office. Rep. Ryan, “It kind of comes down to this, Mr. Speaker, two points. Number one, we believe the best way to get ahold (sic) of our fiscal problems, to reduce our deficit, is to hold the line on spending and cut spending and grow the economy. The budget resolution we brought to the floor just a month or so ago was a resolution that froze spending and actually reduced spending in critical areas so we can get a handle on our Nation's finances.”

Representative Steny Hoyer (D-MD) suggested imposing the Pay-As-You-Go (PAYGO) criteria that was set forth in 1990 and several time thereafter under the Clinton administration. PAYGO is the requirement to offset revenue reductions with revenue increases or spending decreases elsewhere in the budget. “Under their bill, (HR 4275) 290 million Americans are going to get a tax increase, but guess what. They will not get it immediately. We are going to delay it a little bit, not only past the next election but maybe past a couple of elections after that,” Mr. Hoyer said. “ Why? Because interest rates are going to go up, taxes are going to go up to pay the interest on this debt that my colleagues are creating, over $200 billion of additional debt in this bill alone.”

Rep Ryan disputed Rep. Hoyer's conclusion that tax breaks will lead to higher debt. Mr. Ryan continued, “We also need to recognize the fact that when you cut taxes, economic growth occurs from that. One of the great stories being told right now, the success that we see in the data from this new economic recovery that is producing all these jobs, is the fact that this year, with the lower tax rates we are paying, we are getting more revenues coming in to the Federal Government. What we see is that when you cut taxes on entrepreneurs, when you cut taxes on families, when you cut taxes on investors, they engage in more economic activity, they create jobs, and people go from being unemployed and collecting unemployment to going and working and paying taxes. That is what is happening today. That is a recipe for success.”