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Debates On Tax Cuts

The debates on tax cuts taking place in Congress are making the daily headlines of every radio station, newspaper, and television station in America. The issue at hand is what to do with the projected budget surplus estimated to total $2.9 trillion over the next decade. Republicans and Democrats of the House and Senate have come up with several tax cut proposals ranging from less than $300 billion to almost $800 billion worth of tax cuts. Opposing views from both party members in the House and the Senate are wrecking havoc over a budget surplus that may not be a reality and only a projection for the next ten years.

President Clinton unveiled his plan to use the estimated budget surplus to secure Social Security and Medicare first and far most, eliminate the national debt, while still having enough left over to compromise a deal with the Republican led Congress and their demand for tax cuts. A writer for The New York Times, wrote the president was willing to work with Republican leaders to use the $2.9 trillion federal budget surplus over the next ten years but was only willing to devote approximately $250 billion to tax cuts. He was quoted by The New York Times “The surplus is the hard-earned product of our fiscal discipline. We should use it to prepare for the great challenges facing our country: caring for our parents, caring for our children, freeing our nation from the shackles of debt so that we can have long-term sustained economic prosperity” (Stevenson 1999, A1, A14). President Clinton proposed a $250 billion tax cut to begin the negotiations before The Congressional Budget Office unveiled their own plan.

The Democrats were the first to submit an alternative proposal of $290 billion to the Senate. It targeted tax breaks for retirement savings, college tuition, health care, married couples, and buyers of health insurance with enough money left over to ensure the protection of Social Security, Medicare, new programs, and pay down the federal debt. The alternative proposal to President Clinton’s $250 billion tax plan ended in defeat when the Senate voted 60-39 against it. The Republicans of the House debated for a larger $792 billion tax cut before the Ways and Means Committee. The debate ended with a 223-208 vote and a Republican win. Their tax cut proposal called for across the board 10 percent cut in income tax rates phased in over a period of ten years. After 2001, annual increases would kick in only if total national debt dropped. It allowed for married couples to claim an increased standard deduction. Concerning capital gains, the House voted to cut the top tax rate for most investments held at least a year from 20 percent to 15 percent. The alternative minimum tax called to ensure personal credits that would not cause middle-class people to become subject to the tax and gradually repeal the amount over a period of ten years. Estate taxes would be phased down and eventually would repeal tax on inheritances. Pertaining to retirement, it would increase contribution limits to some employee benefit plans and reduce time for vesting in some pensions from five years to three years (Associated Press 1999, 1). While the $792 billion was being debated before the Senate, Richard W. Stevenson reports in The New York Times “Republicans suffered a symbolic setback when they were unable to sidestep a rule–written at a time when Congress was intent on limiting the growth of budget deficits–that makes it difficult to pass tax cuts that remain in effect for more than ten years.” It was also reported “Republicans asked for a waiver of the rule, a step that requires 60 votes. But they could muster only 51 votes, as all 45 Democrats and three moderate Republicans voted to keep the rule in effect” (Stevenson 1999, 3).

Proud of the Republican win, U. S. House of Representatives Republican Majority leader and Chairman of the Ways and Means Committee Dick Armey of Texas was quoted after the vote by an article in The Washington Times saying “See, I told you we had the horses in the barn” (Godfrey 1999, 1). The meaning behind this statement probably stemmed from an uncertain feeling he had at the beginning of the debate. There were a few moderate Republicans within the party who objected the proposal at first. After the provision of reducing the federal debt was added, the small percentage of the moderates who objected the proposal, along with six Democrats who made up for the four Republicans who voted against tax cuts were whipped around. The New York Times quotes Speaker of the House J. Dennis Hastert of Illinois “So Mr. President, we say, what’s wrong in letting American taxpayers’ keep more of their hard-earned money, we trust them to spend it right, and we think you should, too” (Stevenson 1999, 2). President Clinton has vowed to veto the Republican plan and repeated his view that “Republican plans to cut taxes by $800 billion or more over the next decade would make it impossible to revamp Medicare or add billions in new spending for education, the military and the environment” (Broder 1999, 2).

With the passing of the Republican tax relief proposal in the House, media reports I have recently read or heard claims that Democrats are accusing Republicans of offering huge tax breaks to businesses and investors at the expense of the poor and middle class. A recent headline from Time.com read “Clinton Stakes His Ground on Tax Cuts” in large red bold letters. Following the headline in smaller gray tone coloring was the subtitle “vowing to shoot down Republican proposals, the President styles himself champion of the middle class and the poor” (Karon 1999, 1). It is no secret President Clinton will veto the $792 billion tax cut as well as a $500 billion bipartisan compromise version being debated in the Senate if it reaches his desk.

Compromise tax proposals were also debated in the Senate as well. Among the sponsors of this bipartisan alternative compromise were Democrat Senators John Breaux and Mary Landrieu of Louisiana. John Breaux was quoted by The Washington Times, “We are here today to suggest there is a better way” (Godfrey 1999, 2). The Louisiana Senators along with ten other bipartisan Senators submitted a $500 billion tax cut proposal that collapsed on the Senate floor. The Washington Times reports “plans to cut federal taxes by $500 billion may be too meek for conservatives and too bold for liberals, but will be the framework upon which an agreement may be built if a compromise is reached this year” (Godfrey 1999, 3).

The Senate Republicans passed their $792 billion tax cut plan Friday, July 30, 1999. The vote was 57-43 in favor of the plan. The proposal included:

A reduction from 15 to 14 percent in the lowest personal income tax bracket, effective 2001,…provisions to reduce the marriage penalty, in part by slowly raising the standard deduction for married couple to double the amount allowed for individuals…to let investors exclude from taxes the first $1000 in long-term capital gains…more students would be allowed to deduct the interest on their education loans; limits deductible contributions to individual retirement accounts would rise gradually to $5,000…liberalized tax incentives for individual and corporate donors to charities…create a new deduction for the cost of long-term care insurance…raise the estate tax exemption already scheduled to increase to $1 million up to $1.5 million in 2007 (Associated Press 1999, 2).

Following the vote, Senators began efforts of forming a rapid House-Senate compromise to take place in the Conference Committee next week. Senate Majority Leader, Trent Lott, implied the bill titled S. 1429 will not be until September, after the congressional August recess, before it is presented to President Clinton.

With good reason, the name Alan Greenspan has been popular with the media these days. Greenspan is the chairman of the Federal Reserve which serves as the central bank for the U.S. The Federal Reserve also known as the Fed, is in charge of controlling the supply of money that is in circulation. The Fed’s primary way of controlling monetary policy is changing the discount rate which is the rate member banks have to pay to borrow money from the Fed. If the discount rate charged is increased, the money supply will decrease which cools down the economy. If the discount rate charged is decreased, the money supply will increase causing the economy to heat up. The latter is a concern for Alan Greenspan and the Fed and the reason why the rate was increased one-fourth of a percent recently. Giving his opinion to both the House and Senate in recent budget meetings, Greenspan was less than enthusiastic about the proposal for tax cuts. “The timing is not right” he was reported to have said by The New York Times (Stevenson 1999, 2-3). The New York Times reports Greenspan encourages Congress to place a hold on any big tax cuts until budget surpluses begin to unfold. He is in favor of allocating surplus funds to pay down the national debt. But he also said he would prefer a tax cut over using the surplus for spending on government programs proposed by President Clinton (Associated Press 1999, 2).

The past few weeks have been very trying for both the Republican and the Democrat parties. Only time will tell who will land on top of the issues at hand. Surpassed in the past in budget politics by President Clinton, Republicans remain suspicious but welcome some of his programs. It seems the surplus estimate suddenly enlivened a year in which political pressures from the 2000 elections had made agreement seem unlikely on such high-profile issues as Social Security, Medicare, and tax cuts.


Associated Press. 1999. “Greenspan Cautions Against Tax Cuts.” The New York Times On The Web, 28 July, 1-2. Www.nytimes.com/aponline.

Associated Press. 1999. “House, Senate Tax Bill Comparision.” 29 July, 1. www.government.aol.com.

Broder, John M. 1999. “Tax and Spending Talks Begin in Earnest.” The New York Times, 13 July, A14.

Godfrey, John. 1999. “Give and Take Wins for GOP’s Taxcutters.” Washington Times Internet Edition, 23 July, 1. www.washingtontimes.com.

Godfrey, John. 1999. “GOP Senators Defeat Bid to Lower Tax Cut.” Washington Times Internet Edition, 29 July, 2. www.washingtontimes.com.

Karon, Tony. 1999. “Clinton Stakes His Ground on Tax Cuts.” Time Daily Internet Edition, 26 July, 1. Cgi.pathfinder.com/time/daily.

Stevenson, Richard W. 1999. “Republicans Pass Tax Cut With Minor Shift to Win Moderate Support.” The New York Times On The Web, 23 July, 1. www.nytimes.com.

Stevenson, Richard W. 1999. “In Clinton Budget, A Deal Possible on GOP Tax Cuts.” The New York Times, 28 June, A1, A14.

Stevenson, Richard W. 1999. “Senate Republicans Turn Aside Democrats’ Plan for Tax Cuts.” The New York Times On The Web, 29 July, www.nytimes.com.

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