by Joan Entmacher, Vice President for Family Economic Security
National Women's Law Center
Yesterday, President Bush actually closed a tax loophole. Defense contractors had been setting up shell subsidiaries in the Cayman Islands to avoid paying hundreds of millions of dollars in payroll taxes. Now, they’ll have to start paying the taxes they owe to support Social Security and Medicare.
Of course, cracking down on abuses by defense contractors wasn’t the reason President Bush signed the bill. The new law provides tax assistance for military families -- a cause so popular that the bill passed the House 403 to 0 and the Senate by unanimous consent. So, at least this time, President Bush was willing to set aside his belief that tax cuts should not be financed by raising other revenues.
But, when it comes to closing much larger loopholes exploited by super-wealthy private investment fund managers, President Bush and his allies on Capitol Hill so far are giving no sign that they are willing to relent.
Today, the House Ways and Means Committee considered a bill to prevent the Alternative Minimum Tax (AMT) from affecting millions of additional taxpayers this year. The bill is fully paid for, largely by requiring private investment fund managers to pay taxes on their compensation (including the compensation they receive in the form of a share of the profits, or "carried interest") at the same rate as other working Americans, rather than at the much lower capital gains rate. (You can find out more about how super-rich investment fund managers pay a lower tax rate than average working Americans, and avoid paying payroll taxes for Medicare, by reading our blog posts and fact sheets.) And that was the problem. The bill was approved by the Committee, but on a straight party-line vote with all the Republicans present voting no.
And, earlier this week, a different bill to extend various tax benefits for businesses and families, provide tax incentives for alternative energy, and improve the refundable child tax credit for working-poor families that had passed the House was blocked for the second time in the Senate. The reason? These tax cuts were paid for, by closing a loophole that enables wealthy hedge fund managers to avoid paying tax on deferred compensation paid into accounts in offshore tax havens and by delaying a tax benefit for multinational corporations. Even the willingness of Senate Democratic leaders to add AMT relief to the bill without paying for that provision was not enough to get the needed 60 votes.
President Bush and House and Senate Republican leaders claim it is a matter of principle that the costs of renewing expired tax provisions should not be paid for by raising revenues. Huh? It still costs over $60 billion to prevent the AMT from hitting more middle- and upper-middle families this year. The package of energy, business, and family tax provisions passed by the House, and blocked in the Senate because it was paid for, costs over $54 billion. Who will pay? Alas, as we’ve said before, there is no tax fairy to make up for lost revenues. Will we continue to cut the services women and families need to pay for tax cuts? Will we borrow more from foreign creditors, bear higher and higher interest costs, and leave our children with more debt? Or will our policy makers make those who have the greatest ability to pay, pay their fair share?
Hey, it happened once this week.
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