To overcome Republican opposition to raising the federal pay floor, the Senate attached $8.3 billion worth of business-friendly tax provisions. To offset the tax revenue losses, as required by pay-go, the Senate voted to eliminate some tax loopholes and restrict deferred compensation for corporate executives.
A weeks-long deadlock over the tax provisions broke Friday afternoon as the strong-willed chairmen of the tax-writing committees , Baucus and his House counterpart, Rep. Charles Rangel, D-N.Y. , agreed on a compromise. The most controversial "pay-fors" in the more ambitious Senate bill were dropped after intense lobbying, including the restrictions on executive pay. That in itself illustrated the difficulty of pay-go.
Pay-go also forced House Democrats to significantly scale back plans to cut college loan interest rates in half, another key campaign promise. A bill passed in January would cut rates only for the less than one-third of students receiving need-based loans instead of all loan recipients, as originally promised. Lenders are balking because the cost to the government of lower interest for student loans will come out of the subsidies they get in issuing them. The Senate has yet to act on companion legislation.
The effects of the pay-go rule promise to have more dramatic effects on bigger ticket items such as reforming the alternative minimum tax, or AMT, and beefing up medical care for poor children through the State Children's Health Insurance Program, known as SCHIP.
House Democrats have signaled that they want to scale back payments to health insurance companies participating in the Medicare Advantage program in order to finance SCHIP improvements. That's going to be a hard sell in the Senate, where managed care companies participating in the Medicare have greater support.
Fixing the alternative minimum tax looms as the most difficult test. The AMT originally was designed to make sure wealthy taxpayers pay at least some tax. But because it was never indexed for inflation, it has begun ensnaring an increasing number of middle-class taxpayers, especially those with several children in high-tax states such as New Jersey, New York and Connecticut.
More than 20 million additional taxpayers are threatened with the AMT next filing season if Congress doesn't act, and they face tax increases averaging $2,000, according to Len Burman, of the Tax Policy Center, a joint program run by the Urban Institute and the Brookings Institution.
"When push comes to shove it's going to be tough" to live within pay-go, said House Majority Leader Steny Hoyer, D-Md. "We'll have to see, but clearly we want to make a really strong try to do that because we believe the fiscal posture we find our country in is very serious."
This is cache, read story here
