This Week on Capitol Hill

Congress has reconvened from the Easter recess and tax cuts are first and foremost on the legislative agenda. A budget resolution has been approved that directs tax-writing committees to mark up tax cut legislation of $550 billion and $350 billion in the House and Senate respectively.

House Ways and Means Chairman Bill Thomas (R-Calif.) has indicated that the committee’s tax cut bill will include most of the provisions that the president has advocated. The bill, however, will not include the full repeal of the dividend tax and a sunset clause will be attached to certain provisions.

The meat of the president proposal is the elimination of the dividend tax, which would cost nearly $400 billion. Rep. Thomas is facing with the reality that the committee only has $550 billion that can be passed under reconciliation protection; therefore, in order to include the president’s other priorities, the dividend tax will only be reduced, not eliminated entirely.

Rep. Thomas has proposed a 5-15 plan, meaning the dividend tax will drop from its current rate (dividends are taxed as regular income) to either 5 or 15 percent depending on the individual’s tax bracket. Individuals in the bottom two tax brackets will have their dividend income taxed at 5 percent, while those in the higher brackets are taxed at 15 percent. The 5-15 proposal would cost nearly $300 billion, leaving room for other tax cut provision. In addition to slashing the dividend tax, the capital gains tax would be lowered to 5 and 15 percent, subject to how long a shareholder retains the equity. This parity offsets the distortion in the tax code that favors one investment vehicle over another.

Along with the dividend tax cut, the committee has included other measures such as accelerating the 2001 tax cuts, increasing the child tax credit, eliminating the marriage penalty for those in the 15 percent tax bracket and those that do not itemize their taxes, and increasing the 10 percent income tax bracket. These provisions, however, will sunset after three years, meaning that they expire. Prior to their expiration, legislators will either have to vote to extend the tax cuts or vote to increase taxes. The tax cut bill will also include raising the amount businesses may expense and increasing business depreciation from 30 to 60 percent.

Though the president has not gotten all that he has called for, the committee has laid out a plan that is politically popular to House conservatives and one that fits into the $550 billion reconciliation protection.

In the Senate, Finance Chairman Charles Grassley (R-Iowa) has indicated that the committee will not mark up legislation that cuts the dividend tax at all. Chairman Thomas’ 5-15 plan, therefore, is looking more promising by the hour. Senate Democrats and moderate GOP senators are balking at the idea of any tax cut plan costing more that $350 billion. These senators have stated that any tax cuts that total more than the prescribed amount must be followed up with offsets; they mean the Senate has to find tax increases to offset any tax cuts. It still remains to be seen what the Senate produces.

Judicial Nominees

It’s been almost 2 years since President Bush nominated his first individual for the federal judiciary. Since then, Democrats have dug in their heels, and obstructed on this issue. They have filibustered Miguel Estrada’s nomination for nearly two months, and today, they will filibuster another of the president’s nominees. Priscilla Owen, nominee for the 5th Circuit Court of Appeals will suffer the same fate as Estrada.

By filibustering two nominees to the appellate court, Democrats have set a new standard, and their actions have changed the intent of the Constitution. Instead of a majority, Democrats have taken their advise and consent role to a new level. For Democrats, any nominee who does not support their ideology will need 60 votes, a supermajority.

Democrats may not stop their filibuster train just yet. Two more judicial nominees may face the same fate as Estrada and Owen. Carolyn Kuhl, nominee to U.S. Court of Appeals for the 9th Circuit and J. Leon Holmes a district judge nominee will face severe Democratic opposition in committee and on the floor.

Become a Freedom Team Member

Make an impact in your community by becoming a Freedom Team member!

Join Us Today