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House tax action on city priorities likely this week.

Congress began work behind closed doors on major tax legislation affecting the nation's communities last week with a goal of action by the full House as early as next week.

The outcome of the tax debate could sharply hurt or help the ability of cities and towns to recover from the recession.

The tax cuts proposed by the administration could severely impact states and local governments by undercutting state tax revenues, exacerbating state fiscal problems and forcing even deeper cuts in state aid to cities and towns. But a tax proposal House Democrats expect to consider this week would offset such impacts and could provide permanent extensions for NLC-priority expiring provisions and include some simplification of the complex rules and mandates on tax exempt municipal bonds.

The tax action came at the same time as the first formal action by any Congressional committee to support NLC's number one priority: amending the 1990 budget agreement to permit savings from cuts in defense spending to be dedicated to reinvesting in America's hometowns. In a major victory for the nation's municipal leaders, the House Ways and Means Committee voted to support sending a letter from committee chairman Rep. Dan Rostenkowski (D-Ill.) supportive of making the key change--and opposing using defense cuts to pay for tax cuts as suggested by the administration.

The Ways and Means letter came on a divided vote, as the White House and both Democrats and Republicans in the Senate prefer using any defense cuts to pay for middle income tax cuts instead of reinvestment in domestic America.

Bitter Debate Begins

On Wednesday, in a bitterly partisan session, the House Ways and Means Committee voted to report out without recommendation the more than $53 billion in tax cuts proposed by President Bush last month--after rejecting a $31.3 billion tax package substitute offered by committee Republicans and supported by the White House.

Then the committee Democrats began to caucus behind closed doors in an effort to act on a Democratic alternative, which they hoped to complete last Saturday, after The Weekly went to press. Democrats were expected to use a $90 billion, 30 point proposal by Rostenkowski as the starting point for their discussions.

Rostenkowski, who provided the members with his proposals on Thursday, offered a plan to extend permanently municipal authority to issue mortgage revenue and small issue industrial development bonds, and low income housing and targeted jobs tax credits. He also proposed to reduce a number of restrictions hampering the ability of smaller cities and towns to issue traditional public purpose tax exempt municipal bonds.

The Rostenkowski draft includes a major middle income tax cut, targeted capital gains tax cuts, and a corporate rate cut.

To offset the revenue loss to the federal government, Rostenkowski proposed $90 billion in tax increases over the next five years, 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. Rostenkowski rejected the proposed White House mandatory Medicare tax increases on state and local governments.

The committee voted 22-14 on a partyline vote to report out HR 4210--all of the President's tax cut proposals as introduced in a single revenue package by House Majority Leader Richard Gephardt (D-Mo.)--after rejecting 13-23 the Republican substitute, HR 4200.

The committee then agreed that both the Republican and a Democratic tax substitute would be in order when the tax bill is brought to the floor of the House next week.

House Republicans have insisted that Congress act on two separate tax bills rather than one. Moreover, House Republicans rejected the President's tax proposals--objecting both to the $21 billion in tax increases and that the capital gains tax cut was not steep enough.

The $31 billion Republican substitute includes no middle income tax cut; it proposes: a capital gains tax cut: a $5000 tax credit for first-time homebuyers; a modification to allow penalty-free withdrawals from IRA's for first-time homebuyers; passive loss relief; an investment tax allowance; simplication and modification of the alternative minimum tax depreciation; and provisions to subsidize real estate investment through pensions. It includes no provisions to extend the key expiring municipal priorities or to modify mandates on municipal bonds.

Because a majority of states conform state income tax codes to the federal code, the Republican substitute would affect and reduce revenues to as many as 39 states.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Feb 17, 1992
Words:736
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