By Larry Jones
April 28, 2003

When members of Congress return to Washington on April 29 from a two-week recess, the first order of business for Republican leaders, who control both houses by a slim majority, will be to pass an economic growth package before adjourning for the May 26 Memorial Day recess. But that will not be easy, considering that most Democrats and some moderate Republicans disagree with the President and Republican leaders in Congress over the size and the type of tax breaks that should be included in the growth package.

2004 Budget Limits

Before leaving town for the Easter recess members of Congress adopted a budget which sets a $2.2 trillion limit on overall spending for fiscal year 2004. But they were unable to resolve a disagreement between the House and Senate over the amount that should be included in the budget for an economic growth package which, under Senate rules, would be protected from a filibuster when the measure moves through the legislative process later next month.

The House initially adopted the President's $726 billion economic growth package, which calls for eliminating taxes on stock dividends, accelerating the phase-in of income tax rate cuts enacted in 2001, and increasing tax cuts for small businesses. But almost all Democrats and moderate Republicans, due mostly to concerns about the cost of the war with Iraq and ballooning federal deficits projected far into the next decade, blocked passage in the Senate. Instead, Senators adopted a $350 billion growth package, which the White House and Republican leaders in Congress argue is too low to provide a significant boost to the economy. In the end, both houses adopted an unusual compromise that will allow the House to consider an economic growth package that could cost up to $550 billion, while the Senate will be limited to considering a $350 billion package.

With the White House pushing for the larger amount in the House package, Republican leaders in the House and Senate tried to work out a deal during negotiations on a final budget that would have limited the Senate's initial vote on a growth package to $350 billion while freeing up members to vote for a larger amount if it evolves from a House'senate compromise on a final package. However, two moderate Republicans_Senators Olympia Snowe (ME) and George Voinovich (OH) withheld their support on the final budget until they were assured by the Senate leadership that the Senate would not be permitted to vote on a final growth package any larger than $350 billion.

Also the Senate parliamentarian ruled that a vote on a larger amount in the Senate would be subject to a point of order which would require 60 votes to overcome. This is highly unlikely considering that 48 Democrats an 4 Republicans have voted against funding a growth package larger than $350 billion. However, the White House and Republican leaders in the House are still pushing for the amount in the House bill.

Components of a Growth Package

While the Republican leaders in the House support the President's economic growth package, they realize there will not be enough money to fund the entire $726 billion package. And if the Senate prevails in limiting funding to $350 billion, some of the components in the President's package may have to be eliminated or significantly scaled back. Consequently, an aide on the Senate Finance Committee, who is working on options for members to consider including in a growth package, said on April 23 that one of those options will be dropping the most expensive part of the President growth package, a $396 billion proposal that would eliminate taxes on stock dividends. The other parts could be retained which call for accelerating income tax rate reductions, increasing the child tax credit, accelerating the phase-in of tax breaks for marriage couples and increasing tax cuts for small businesses.

The other less expensive part of the President's package would cost $330 billion, which leave $20 billion could be used for some form of dividend tax relief or a cut in the capital gains tax or an increase in the amount that businesses can deduct for the purchase of equipment. Senator Charles Grassley (IA), who chairs the Senate Finance Committee, plans to release a proposed tax bill that includes a growth package on May 5 and he is planning for the full committee to take action on the measure May 7.

Although House Ways and Means Committee Chairman Bill Thomas (CA) has not set a date for considering a tax bill that includes an economic growth component, he is considering scaling back the President's proposal to eliminate taxes on stock dividends. One of the options he is looking at is reducing the top bracket for the capital gains tax rate from 20 percent to 18 percent and reducing the lower capital gains tax rate from 10 percent to 8 percent and applying these lower rates to both capital gains and dividends.

State and Local Fiscal Relief

Senator Snowe, who serves on the Senate Finance Committee, is pushing to get $40 billion included in the Senate Finance Committee's economic growth proposal for state and local fiscal assistance. She and Senator Charles Schumer are cosponsoring a bipartisan bill, S. 201, that will provide $20 billion to states and $20 billion to local governments. This would be a one-time grant to help financially strapped state and local governments that are experiencing the worst fiscal conditions since World War II, due in large part to the down turn in the economy, the 9/11/01 terrorist attacks and unfunded federal mandates.

Senator Snowe has assured state and local officials that she will strongly urge that state and local fiscal assistance be included in the final economic growth package. So far she has been a key player in the Senate on budget and tax issues and it is unlikely that a growth package will pass in the Senate without her support and the support of Senator Voinovich.

The Conference and other state and local groups have sent action alerts to mayors, state legislators, county and other local leaders urging them to contact their Senators, particularly those on the Senate Finance Committee, and urge them to support Senator Snowe's proposal, S. 201. Also a joint letter signed by the Conference, the National Conference of State Legislatures, the National Association of Counties, Council of State Governments, National League of Cities and the International City/County Management Association was sent to the leadership of Senate Finance Committee and the House Ways and Means Committee urging that no less than $40 billion in fiscal assistance, split evenly between state and local governments, be included in the economic growth package that these committees are planning to take action on soon.