Senate eyes tax break on pensions

Package cuts tax rate and marriage penalty, phases out estate tax

May 10, 2001|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - Senate leaders appear likely to include a proposal that would increase tax benefits for pension savings, such as IRA and 401(k) plans, in the $1.35 trillion tax cut package that they hope to pass this month.

Sen. Max Baucus of Montana, the senior Democrat on the tax-writing Finance Committee, said it is "very possible" that the tax package will include a pension savings measure similar to one the House passed overwhelmingly last week.

A Republican leadership aide confirmed that a pension measure has tentatively been included in the Senate's tax bill.

Baucus and Senate Finance Committee Chairman Charles E. Grassley have trimmed the cost of their proposal from $62 billion to $40 billion over 10 years to squeeze it into the tax cut package, which is smaller than the $1.6 trillion cut that President Bush had proposed. The House bill, sponsored by Rep. Benjamin L. Cardin, a Maryland Democrat, would cost $51 billion over 10 years.

The tax-cut package, which is being shaped behind the scenes by the top leaders of both parties in the Senate, is expected to be unveiled tomorrow after the Senate completes action on the budget blueprint.

The House voted 221-207 yesterday, mostly along party lines, to approve the budget blueprint worked out in negotiations with the White House and centrist Senate Democrats.

The blueprint, which sets targets for spending and tax cuts, is crucial to speedy enactment of the tax package.

The budget blueprint's key element is the number $1.35 trillion, which ensures that a tax cut package of that size can move through the evenly divided Senate without the threat of a filibuster.

"I commend Republicans and Democrats for joining together to pass a budget framework that will return money to the taxpayers and provide reasonable spending increases," Bush said after the House vote. "The American people can take heart that tax relief is one important step closer to reality."

Grassley, an Iowa Republican, said the package he plans to make public tomorrow will contain versions of four major Bush proposals: an across-the-board cut in income tax rates, an increase in the per-child tax credit, a reduction of the so-called "marriage penalty" on two-earner couples and a phaseout of the estate tax.

Each would be less generous than Bush had proposed. For example, Bush wanted to reduce the top income tax bracket from 39 percent to 33 percent, but the Senate proposal is expected to put the top rate at 36 percent.

The child tax credit proposal is expected to be altered to provide direct refunds to low-income families, an element not included in the Bush proposal.

Congress has decided to devote $100 billion of the tax cut to provide quick relief this year to stimulate the slumping economy. That relief is expected to be provided by making the income tax rate cut retroactive to the beginning of this year.

Taxpayers should see a drop in taxes withheld from their paychecks shortly after the legislation is signed into law by the president.

Grassley and Baucus say there will be room to accommodate other tax-cut proposals and are meeting with their colleagues nearly around the clock to weigh the options. The pension savings measure is being described as a top priority.

Even so, competition is fierce to be included in this tax-cut package, which can't be filibustered in the Senate and which Republican congressional leaders are racing to pass within the next few weeks.

Sen. Don Nickles of Oklahoma, the Republican whip and a member of the Finance Committee, continues to argue that the pension bill, which passed with more than 400 votes in the House, has such broad, bipartisan support that it should be the lead item in a second tax cut bill planned for later in the year. That measure might also include business tax breaks, such as a reduction in the tax on capital gains.

However, Cardin and other advocates of the pension savings measure do not want to wait for the second bill, because it would not have the filibuster-proof protections of the one with Bush's tax cut proposals.

The budget blueprint passed yesterday after more than a week of wrangling over details and procedural delays generally adheres to Bush's plan to hold discretionary spending for most programs to an overall increase of 4 percent.

Democrats said yesterday that the 4 percent spending increase included in the budget blueprint shortchanges domestic programs and ignores the likelihood that additional spending will be required for defense programs and farm aid later in the year.

"This budget is a farce and it's a fraud," said House Minority Leader Richard A. Gephardt, a Missouri Democrat. "And at the end, America deserves better than that."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.