Congressional Budget Committees Approve FY 09 Budget Blueprints
Tax Bills Fate to Be Determined in April
Issue: Tax
Date: March 7, 2008
Action Taken: House and Senate Budget Committee work doesn’t get much public attention. But the actions of those committees frequently are an early indicator of future tax developments. So NAIFA pays attention to budget developments.
Kicking off the process for 2008, yesterday both the House and Senate Budget Committees approved $3 trillion budget blueprints for fiscal years starting October 1, 2008 and beyond. Both committees (controlled by the Democratic majority) defeated Republican amendments to instruct the tax writing committees to craft legislation to make permanent the 2001 and 2003 tax cuts. To name a few, the 2001 and 2003 tax cuts included estate tax repeal, the15 percent rate on capital gains and dividends, and lower marginal tax rates for high income taxpayers.
Right now there is one crucial difference between the House and Senate budget versions. The House bill includes procedural protections to make it easier to pass a future budget tax bill, while the Senate version does not. The House “protection” measure prevents a Senate filibuster of a future budget tax bill, thereby making it much easier to pass one in the Senate. That difference could be crucial to the insurance industry. Here’s why.
Background: If the Senate Budget Committee’s version prevails through Senate floor debate and a House-Senate conference, the way would be clear for Congress to approve some "must-do" tax legislation without offsetting revenue increases. That would make it much easier, for example, for Congress to pass a $70 billion "patch" of the alternative minimum tax (AMT), a move necessary to prevent more than 20 million more taxpayers from having to pay the AMT in 2008. On the other hand, the House committee bill includes in its budget blueprint instructions to offset fully the revenue lost by such an AMT patch. If this provision holds, NAIFA is concerned that Congress will then have to review all tax incentives it has granted in the past in order to make up the lost revenue. The list could include tax incentives applying to life insurance, annuities, employer-provided benefits such as health insurance, cafeteria plans, long-term care insurance, and health savings accounts.
Next Steps: The House and Senate are both scheduled to debate their respective Budget Committees' blueprints during the week of March 10. Amendments are unlikely in the House, but inevitable in the Senate. It is impossible to predict at this point whether any amendments will pass the Senate.
After House and Senate action, Congress will recess for a two-week spring district/state work period. When Congress returns to Washington in early April, negotiations will begin between the House and Senate to devise one budget for both chambers to approve. Those negotiations will determine whether revenue raising offsets will be required for budget-related tax legislation this year.
Incidentally, President Bush's approval of the Congressional budget is not required. The budget is not a law in the traditional sense. Its importance mostly comes from the limits it places on Senate filibusters. Even the threat of a filibuster usually leads to Senate compromise.
NAIFA Staff Contact: For additional information on this issue, please contact Michael L. Kerley at Mkerley@naifa.org or Danea M. Kehoe, Outside NAIFA Counsel, at DaniKehoe@aol.com.
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