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Administration and Congress tackle taxes.

President Bill Clinton met with key House and Senate leaders last Thursday as he pushed for quick action on his deficit reduction and economic recovery plan, HR 2264. But the taxing question for city leaders will be whether Congress will agree to the president's economic incentives affecting cities and, if so, what kind of energy taxes will be used to pay.

The president met with the leadership one day after House Speaker Thomas Foley (D-Wash.) named about 100 members of the House to the House-Senate conference to go with the 50 Senate members on what promises to be one of the most difficult conferences ever. The meeting also came after the House rejected a Republican motion to choose the lowest spending proposals in the conference--in effect rejecting an effort to kill most of the economic incentives the president sought, including permanent extension of municipal authority to issue mortgage revenue and small issue industrial development bonds and the proposal to provide $5.2 billion in enterprise zone incentives to cities and towns.

The 150 Congressional conferees are charged with reconciling the differences between the House and Senate versions of the president's plan, each of which would reduce the deficit by about $500 billion over the next five years. They met formally last Thursday before breaking into small subgroups, reflecting the work of 25 different committees that developed respective portions of the bill.

Most of the work of compromising, however, is expected to go on behind closed doors and outside of the formal conference. Eighty percent of the work will fall on the conferees from the House Ways and Means Committee and the Senate Finance Committee, which bore the major deficit reduction responsibilities--both in raising taxes and cutting entitlement spending.

Key Emerging Issues

This conference is expected to be especially difficult because of the refusal of a single Republican in either House to vote in support. No major federal deficit reduction proposal has ever become law without at least some bipartisan support. With Republicans apparently set to oppose whatever compromise is reached, Democrats are unlikely to pursue any serious negotiations with Republicans present, forcing most of the hard work of compromise into back rooms.

But the absence of Republicans means Democrats have little margin with which to work and will have to fashion a compromise that spans sharply distinct positions with their own ranks. Some of the key issues that will have to be resolved to succeed are:

* Does the final bill have to reduce the deficit by $500 billion or not?

* Should there be an energy tax or not? If so, what kind? And where should any gas tax revenues go?

* How should the conferees address the balance between spending and taxes, and what, specifically, should they do with the $21 billion in higher spending initiatives in the House version?

$500 or Bust

President Clinton has set a bottom line of $500 billion in deficit reduction out of this bill, but the Senate has already blinked, and a number of Democrats have asked what is magic about that number. Indeed, the House Republican alternative would have achieved only $445 billion in deficit reduction, and the Senate GOP version would have achieved only $410 billion.

With Democrats deeply split amongst themselves over the balance between spending cuts and taxes and the president's economic incentives, some have suggested accepting a lower level of federal deficit reduction--thereby making a compromise easier.

To Tax Energy or Not To

With the president's and House-passed $72 billion BTU energy tax all but dead, there is considerable debate about the role of any energy tax in a final compromise. A large number of House Democrats have proposed that even the Senate $21 billion gas tax be dropped because of its impact on low and moderate income families. But the White House and Democratic leadership in the House and Senate have insisted that some form of an energy tax which raises even more than the Senate version is critical for both deficit reduction and to pay for the economic incentives included in the House bill.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) has suggested that conferees might consider a blend of both the Senate 4.3 cent per gallon gas tax increase and some form of a federal utility tax on consumers. Such a proposal might include a federal utility tax directly on state and local governments for gas, electricity, and other energy utility purchases.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Jul 19, 1993
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