Summer Deadline on Tax Vote Possible

February 22, 2001

Senate Majority Leader Trent Lott (R-MS) believes floor action on President Bush's tax proposal could come by July 4. Bush has been meeting with congressional leaders in an effort to deliver on his campaign pledge for a tax reduction. Bush is proposing $1.6 trillion in tax cuts over 10 years and said that his plan will include an across-the-board tax cut, elimination of the estate tax and substantial relief from the so-called marriage penalty.

House Speaker Dennis Hastert (R-IL) favors moving Bush's tax relief plan in two or three bills, while Lott has said that the Senate would move the legislation as one proposal. This strategy is similar to how both chambers handled tax bills in the 106th Congress.

U.S. taxpayers required to pay capital gains taxes are often the ones who can least afford it. More than 60% of taxpayers who pay capital gains taxes, including most U.S. farmers and ranchers, earn between $10,001-$100,000. But only 2% of those earning more than $500,001 pay capital gains taxes.

The estate tax, or so-called death tax, which can collect close to 55% of a farmer's estate, if of interest to farmers. The American Farm Bureau Federation has made elimination of the tax a legislative priority in 2001.

While commending the president's proposed move to eliminate the death tax, farmers and ranchers "hope that FARRM (farm and ranch risk management) accounts will be included in the president's proposal," said Pat Wolff, an American Farm Bureau Federation senior director of governmental relations. During his campaign, Bush pledged his support for FARRM accounts, which would allow eligible producers to contribute up to 20 percent of their taxable income into tax-deferred, interest-bearing savings accounts to better weather the income fluctuations typical of the industry.

"President Bush needs to fulfill his campaign pledge of support for FARRM accounts," Wolff said. "He needs to do more than just support them, he needs to propose them."

Farm Bureau hopes the final tax package will include a reduction in the capital gains tax too, Wolff said. Although reducing the capital gains tax was not part of Bush's campaign agenda, help may arrive from the Senate majority leader and the Finance Committee chair, Chuck Grassley (R-IA). Both have said they support a cut in the tax to spur the economy.

Wolff said Farm Bureau would advocate that capital gains tax rates be reduced to a maximum of 15 percent. An immediate change that would "specifically help the agriculture community" would be for Congress and the president to support an expansion of the $500,000 homeowner exclusion to include farmland, Wolff said.

At issue, however, is whether Democrats will support Bush's plan. Senate Minority Leader Tom Daschle (D-SD), who recently introduced his own tax bill, said Senate Democrats favor targeted tax cuts in the $900 billion range. While Daschle and House Minority Leader Dick Gephardt (D-MO) say they and other Democrats support tax cuts, they have expressed concern that a tax cut of $1.6 trillion will divert needed funds away from other national priorities, such as the long-term solvency of the Social Security Trust Fund.

But momentum seems to be building in support of a larger tax cut. Last week, the Congressional Budget Office predicted a $5.6 trillion surplus over the next decade--up $1 trillion from its last projection just three months ago. The GOP leadership and the White House said the CBO projections, combined with Federal Reserve Board Chairman Alan Greenspan's tacit endorsement of the Bush tax plan, could sway more members of Congress, especially Democrats, to endorse the $1.6 trillion tax cut.

Greenspan told the Senate Budget Committee on Jan. 25 that the surplus would accommodate both tax cuts and debt relief. He said that the increasing surpluses have "reshaped the choices and opportunities before us." Federal debt could be paid by the end of the decade and there would still be money left over, barring a recession, he said.