Statement of Administration Policy: H.R. 1215 - Tax Fairness and Deficit Reduction Act

(House)

The Administration strongly opposes enactment of H.R. 1215 because it is fiscally irresponsible and would provide disproportionate tax benefits to the wealthy at the expense of programs for average Americans. If H.R. 1215 were presented to the President in its current form, the Secretary of the Treasury and the Director of OMB would recommend a veto.

More than half of the tax cuts contained in H.R. 1215 would benefit families with incomes over $100,000. Moreover, the top 1 percent — families earning $350,000 or more — would receive 20 percent of the benefits of the tax cuts; and the top 5 percent of families would receive two-thirds of the tax benefits from the capital gains provisions. In addition, the repeal of the corporate alternative minimum tax would return us to the days when large, profitable corporations could avoid paying any income taxes.

Moreover, many of the budget offsets are highly objectionable. Reductions in health and nutrition programs for children and families — such as school lunches — should not pay for tax cuts for the wealthy.

The tax cuts in H.R. 1215 would seriously obstruct efforts to reduce the deficit. Revenues would be reduced by $630 billion over 10 years. In particular, the cost of the depreciation system proposed in H.R. 1215 would explode outside the five-year budget window. In fact, in FY 2002 alone, the tax cuts Would cause a revenue loss of $92 billion. As a result, an effort to achieve a balanced budget by FY 2002 — assuming the mandatory savings proposed in this bill and the House-passed welfare reform bill, and a freeze in defense spending proposed by some Members of congress — would require that total non-defense discretionary spending be cut by 89 percent below current levels.

The courts would likely hold unconstitutional the proposal by the Rules committee to make the tax reductions contingent on deficit reduction. Under the provision, the tax cuts would not take effect unless both the House and the Senate approve: (1) an FY 1996 budget resolution which provides for a balanced budget in FY 2002; and (2) a conference report on the Reconciliation bill containing provisions which (if enacted) would achieve the required amount of deficit reduction — according to a statement of the conferees based on CBO estimates. This delegation of authority to the legislative branch — i.e., to trigger the tax cuts — is likely to be held unconstitutional.

It is regrettable that the House will not be voting on a proposal by some House members to reduce the eligibility cap for the family tax credit from $200,000 to $95,000. This would have been a small step in the right direction. Even with this change, however, the bill would have provided more than half its benefits to families with incomes above $100,000.

By contrast, the Democratic substitute would target tax relief to the middle class and encourage savings and investment in education — goals that the Administration supports.

Pay-As-You-Go Scoring

H.R. 1215 would affect receipts and direct spending; therefore, it is subject to the pay-as-you-go requirement of the omnibus Budget Reconciliation Act of 1990. The Administration's preliminary scoring estimates of this bill are presented below. Final scoring of this legislation may deviate from these estimates.