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Bush tax cuts rejected; House passes alternate.

The House of Representatives last week rejected President George Bush's proposed tax cuts by a vote of 427-1 and then voted 221-210 to pass and send to the Senate a $90 billion Democratic alternative. The alternative includes a number of provisions to assist communities and rejects the administration's proposed mandatory Medicare taxes on state and local governments.

The Democratic version, Rosty I, includes a number of NLC priorities, including reducing some of the complex restrictions on the issuance of municipal tax exempt bonds, permanent extension of expiring municipal priorities, increased benefits for public transportation, easing of restrictions on municipal retirement plans, and adoption of urban and rural enterprize zones.

Unlike both the President's proposal and the House Republican alternative, Rosty I would reduce the federal deficit by $14.3 billion over the next five years. According to the non-partisan Congressional Budget Office and Joint Tax Committee, the President's tax cut proposals would have increased the federal deficit by $41 billion over the same time period, the House GOP proposal would have increased the deficit by $22.5 billion.

The White House has vowed to veto the Democratic alternative, if Congress passes it.

The move came as the Senate Finance Committee deferred action on its tax bill until this week, but began to settle on the outlines of its own version. Congress is racing to complete action on a tax bill before the March 20 deadline set by the President last month in his State of the Union Address.

House Action

and Municipal impacts

The House followed what is called a King of the Hill procedure in which the last alternative to pass is the version adopted. Under the procedure, members were asked to choose among the President's proposed tax cuts, the House Republican alternative, and Rosty I.

After rejecting the President's proposal, the House voted 264-166 to reject the House Republican alternative.

The alternative, GOP I, was a short term substitute including seven tax cuts, but which dropped all of the President's proposed federal tax increases, substituting instead a number of accounting provisions and optimistic economic assumptions.

The $31 billion Republican substitute included none of the provisions supported by NLC.

Rosty I includes $78.2 in tax cuts, but $94.9 billion in tax increases and revenue offsets. It would provide a major, but temporary middle income tax cut and targeted capital gains tax cuts. The tax increases would come mostly through restoring a higher rate on high income individuals and families, a surtax on millionaires, and a two-year extension of the current restrictions on the deductibility of state and local taxes.

For communities, the key provisions would:

[section] extend permanently municipal authority to issue mortgage revenue and small issue industrial development bonds, and low income housing and targeted jobs tax credits;

[section] reduce a number of restrictions and mandates hampering the ability of smaller cities and towns to issue traditional public purpose tax exempt municipal bonds;

[section] increase the income tax exclusion for employer (including municipal) provided transit passes from $21 to $60 per month and expand the provision to include van pools;

[section] create 10 urban and 25 rural enterprise zones over the next three years where there types of federal taxes incentives would be made available for up to 15 years; a wage credit for small employers who hire local residents; accelerated depreciation benefits; and a deduction for the purchase of certain capital stock;

[section] modify the limits on contributions and benefits under section 415 municipal pension plans.

Senate gets ready for action

After a Senate Democratic caucus to discuss tax legislation on last Wednesday, Senate Finance Committee Chairman Lloyd Bentsen (D-Tx) said the Democrats were close to an agreement on a smaller tax package than Rosty I. The committee expects to begin action on Tuesday. Senate Republican Minority Leader Robert Dole reported that the Senate Republicans would probably introduce an alternate similar to the House GOP or magnificent seven proposal.

Bentsen indicated his proposal would include a $300 non-refundable, middle income tax credit for dependent children and expanded incentives for Individual Retirement Accounts (IRAs). He said he would propose to pay for the cost of his proposal through a surtax on millionaires and a higher top marginal rate in order to insure that the Senate bill does not increase the federal deficit.

Bentsen also indicated his proposal would include passive loss relief, extensions of expiring municipal priority provisions, tax simplification, a capital gains tax cut, and some health care reform provisions.

Dole indicated Senate Republicans were divided over whether to offer the President's middle income tax cut or not, and Sen. John Chaffee (R-R) indicated the Republicans were giving some consideration to including the municipal extenders.

Local impacts

Because more than 40 states piggy back state tax laws on federal tax laws, federal tax cuts could immediately reduce state revenues in the middle of a nationwide recession. The cuts could, in turn, force state and local governments to increase taxes and cut spending to balance budgets. Such actions would be more likely to exacerbate the national recession than to stimulate economic recovery.

Proposed cuts in the capital gains tax and incentives for savings would have the sharpest impact on state and local governments, as well as the most serious long term impacts on the federal debt.
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Title Annotation:includes related information on key provisions of the alternate proposal
Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Mar 2, 1992
Previous Article:Poor child gives her 'State of Union' address to task force.
Next Article:Partnership Act clears first of many hurdles.

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