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Congress Adopts a Compromise Tax Bill

By Larry Jones


Before leaving for the long awaited month-long August recess, both houses of Congress adopted a compromise tax bill that will provide $792 billion in tax cuts over the next ten years. President Clinton, who favor a much smaller tax cut has vowed to veto the proposal as soon as it reaches his desk. In general the Republican’s proposal would provide a one percent across-the-board reduction in each of the five income tax brackets, gradually eliminate the so called marriage penalty tax, phase out estate and gift taxes and reduce individual capital gains tax rates. While the proposal includes a few tax credits and tax incentives that will help cities, the huge cost of the total package would force drastic cuts in many key city priority programs.

The highly politicized proposal was approved on August 5 in the House by a vote of 221-206 and in the Senate by 50-49, mostly along party lines. After President Clinton vowed to veto the proposal, Senate Majority Leader Trent Lott (MS) decided to delay sending it to the President until after the August recess. This will give Republicans time to discuss the proposal with their constituents during the recess and try to drum up broad-base support among voters. However, there is hardly no chance the President will sign the bill because it far exceeds the amount he would devote to tax cuts and fails to address some of his key priorities.

The President and Republican leaders in Congress are divided over what the federal government should do with an estimated $1 trillion in non-Social Security surpluses that the Congressional Budget Office estimates will be available over the next decade. They agree, however that the surplus generated from the Social Security Trust Fund should be set aside to extend the solvency of the program.

Under the Republican’s proposal, approximately 80 percent of the non-Social Security surplus will be used for tax cuts. The bill assumes that Congress will adhere to the 1997 Balanced Budget Act, which imposed stringent budget caps on spending for most federal programs. The caps don’t even leave room for inflationary adjustment and would mean significant cuts starting October 1 for programs such as the Local Law Enforcement Block Grant, the COPS program, Community Development Block Grants, Summer Youth Jobs, and the Welfare-to-Work program.

The President favors using $328 billion of the estimated $1 trillion surplus to extend the solvency of the Medicare program, $74 billion to provide a prescription drug benefit for Medicare recipients, and $328 billion to increase spending on military and domestic discretionary programs. He would use $250 billion on targeted tax cuts to aid working families with child care, education expenses, long-term care, and to establish new private savings accounts to supplement Social Security savings.

When members of Congress return to Washington in September, they will have 18 working days to complete an enormous amount of work. Only 2 of the 13 appropriations bill have been signed into law. To keep the government operating beyond September 30, the remaining 11 appropriations bills or an omnibus spending package must be signed into law. The House has passed 11 of the bills and the Senate has passed only 9. Neither house has passed the two most difficult bills Labor/HHS and Veterans/HUD appropriations, which fund many key city priority programs. Unless Republican leaders in Congress can reach consensus with the President on the key budget issues—lifting the budget caps and dividing up the estimated $1 trillion non-Social Security surplus among Medicare, military and domestic discretionary spending, and tax cuts—passing any appropriations measure may prove to be almost impossible.

Some Republican leaders have suggested that they are not interested in reaching a compromise with the President that will significantly reduce their $792 billion tax cut. Senate Majority Leader Trent Lott (MS) said "sometimes inaction is better than the wrong action." Other have suggested that failure to reach agreement on a budget deal is not a bad option since "...all that money [from the surpluses] will go to buy down the [national] debt," said Senator Larry Craig (ID). Even the White House prefers using the surplus to pay down the national debt instead of using it to provide huge tax cuts. But the President has left the door open to reaching a compromise on the budget deal. He has invited the Republican leaders to work with him to reach consensus on a deal that will address Medicare, provide increased funding for military and education programs, and devote the rest to tax cuts.

The following is a summary of actions taken to date in some of the key appropriations bills of interest to mayors:

Community Development Block Grant (CDBG) and HOME Face Cuts - In July the House Veterans Affairs, Housing and Urban Development and Independent Agencies Subcommittee and the full Appropriations Committee approved cuts for several HUD programs. The Community Development Block Grant (CDBG) program was cut from $4.750 billion in the current fiscal year to $4.500 in FY 2000, while the HOME program was cut from $1.600 billion to $1.580 billion. Incremental Housing Vouchers were not funded at all. Staff Contact: Eugene Lowe

HOPE VI and Other HUD Programs Face Cuts - The House Appropriations Committee’s bill would also cut HOPE VI, a public housing program that assist people residing in distressed communities, by $50 million; cut Drug Elimination grants by $20 million; fund Brownfields redevelopment at a level $5 million less than last year; and cut Housing Opportunity for Persons with AIDS (HOPWA) cut by $25 million. Virtually none of the Administration’s new initiatives for HUD were included in the committee’s bill, including the Private Investment Companies (APIC), which is part of the New Market Initiatives. Staff Contact: Eugene Lowe

COPS Program Cut in Senate by 69% and in the House by 79% - The Senate voted to adopt an amendment offered by Senator Joe Biden (DE) to restore $495 million for the COPS programs. Earlier action taken by the Senate Appropriations Committee eliminated all funds for the program which was funded at $1.43 billion last year. The President had recommended $1.275 billion for COPS in FY 2000 with significant improvements to the program. The House bill would fund COPS at $268 million, a 79 percent reduction from the Administration’s budget request. Both houses have completed action on the Commerce, Justice, State and the Judiciary appropriations bill. A conference committee made up of members from both houses must now meet after recess to resolve the differences between their proposals. With both bills being significantly lower that the President’s request, the program faces a serious cut in FY 2000. Staff Contact: Ed Somers

Local Law Enforcement Block Grant (LLEBG) Cut by 24% in the Senate and Level Funded in the House - The Senate approved a 24 percent reduction in the LLEBG , which would cut the program from $523 million in the current fiscal year to $400 in FY 2000. The House passed bill provides $523 million to keep the program at current levels in FY 2000. The Administration, as in past years, did not include any funding for the program in its FY 2000 budget request. Conferees must meet after recess to resolve the differences between the two versions of the bill. Staff Contact: Ed Somers

Summer Jobs and Training Targeted for 20% Cuts - Under current budget rule which impose stringent budget caps on spending, programs funded under the Labor, Health and Human Services appropriations are expected to be cut by 20 percent. This means approximately 114,000 youth would be eliminated from the summer/youth training program next year. In FY 1999, Congress provided funding for approximately 500,000 summer jobs for youth. Neither the House nor the Senate has taken any action on the Labor-HHS appropriations bill. The leadership of the appropriations committees in both houses are concerned that they will not be able to get the majority of members to agree on a 20 percent reduction. In the Senate, key leaders are considering options to avoid such a drastic cut. Staff Contact: Joan Crigger

Welfare-to-Work Program Faces Elimination- Unless Congress act this year, continued funding for the Welfare-to-Work program will not be available in FY 2000. Since the program is set to expire at the end of the current fiscal year, Congress must first reauthorize it and then appropriate funds. This will not easy since congressional leaders oppose the continuation of the program. However, the President has requested $1 billion for FY 2000 and the nation’s mayors are supporting the President’s request. Staff Contact: Joan Crigger

Child Health Insurance Program (CHIP) - The popular program, which can provide health care for up to five million uninsured children in low-income families, has been discussed as a target for major spending cuts during the budget appropriations process. Reacting to the threat of pending cuts, the Children’s defense Fund has blanketed Capitol Hill with letters voicing strong opposition to the cuts. The President supports the continuation of the program at no less than current levels. In an August 18 address before the nation’s governors attending the National Governors’ Association annual meeting in St Louis, he strongly urged them to enroll children in the program with all due speed.

Staff Contact: Jubi Headley


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