Racing Hill Recess, Tax Deal Moves Toward Votes

Looking for Senate support for the package, Sen. Charles E. Grassley (R-Iowa) pointed to the extension of tax cuts.
Looking for Senate support for the package, Sen. Charles E. Grassley (R-Iowa) pointed to the extension of tax cuts. (By Jay Mallin -- Bloomberg News)
By Lori Montgomery and Steven Mufson
Washington Post Staff Writers
Friday, December 8, 2006

Congressional negotiators agreed yesterday on a $50 billion tax-and-trade package that would preserve a number of popular tax breaks for millions of families and businesses, normalize trade relations with Vietnam and expand offshore oil drilling.

The package would also stave off a scheduled cut in payments to doctors who care for Medicare patients. And it would allow people to shelter an unlimited amount of money in tax-free health savings accounts if they choose certain insurance plans with high deductibles.

The deal, cobbled together early yesterday by House and Senate leaders, was headed for a vote today in the House. From there, it would move to the Senate, where it faces roadblocks.

Senators from the Carolinas, a major textile manufacturing area, are upset about a trade measure that would allow some clothing made in Haiti to be imported free of tariffs. The textile industry argues that it could open a duty-free door to yarns and fabric that originate in China.

And Senate Budget Committee Chairman Judd Gregg (R-N.H.) has demanded that a measure be stripped from the bill that would obligate the government to cover the health-care costs of retired workers from abandoned mines. Gregg argues that it would add $4 billion to the federal budget deficit.

"There's all kinds of landmines out there," said Lloyd Wood, spokesman for the American Manufacturing Trade Action Council, which represents the textile industry.

Senate leaders were working furiously last night to tamp down the objections. With lawmakers hoping to call the 109th Congress to a close today, the two chambers were running out of time to send a bill to the White House. If objections persist, Senate leaders may be forced into a procedural box that would keep them in town until at least Sunday, aides said.

One of the lead negotiators, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), urged his colleagues to support the package. "This is a good agreement," Grassley said in a statement. "It continues tax relief without interruption. It stabilizes access to doctors for Medicare beneficiaries. . . . It gives new access to farmers, including those in Iowa, to the growing Vietnamese market. These are things that need to get done."

The tax portion of the bill would extend until December 2007 several breaks that, for the most part, expired last December. If Congress does not act, taxpayers will be unable to claim them in April. They include a credit, critical to many businesses, for research and development worth $7.5 billion in this fiscal year alone, as well as rewards for employers who hire former welfare recipients and a personal deduction for state and local sales taxes paid by people who live in states without income taxes.

The package would also provide relief to some taxpayers who have racked up large tax debts due to stock options they were unable to cash in. And it would repeal a $5,450 limit on contributions to tax-free health savings accounts, which were created in 2003 to encourage people to manage their own health-care costs.

That provision would cost the government an estimated $1 billion over the next 10 years. Meanwhile, negotiators dropped a provision that would have helped states maintain health coverage for 600,000 low-income children, a decision that drew fire from advocates for the poor.

"It is stunning that as one of its final acts, Congress chose to [make] Health Savings Accounts more lucrative as tax shelters for wealthy individuals even as Congress refused to provide funds needed" for the children's health program, said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, who derided the package as "another windfall for Uncle Scrooge -- and a lump of coal for Tiny Tim."

On energy, the deal would open up 8.3 million acres in the Gulf of Mexico for oil and gas exploration. The measure, which has been attacked as either too permissive or not permissive enough, would also divert 37.5 percent of the royalties from those federal waters to four Gulf Coast states.

Several House members threatened to block the bill if it were not changed to include provisions designed to push oil companies that are not paying royalties on certain leases into renegotiating. The Interior Department neglected to put price thresholds into certain offshore leases in 1998 and 1999. Rep. Edward J. Markey (D-Mass.) has been pushing a measure that would prevent those companies from bidding on new leases.

"We are not going to have a situation where the American consumer pays high prices at the pump and pays on April 15th as well," said Rep. Rahm Emanuel (D-Ill.).

The package includes a dozen energy-related items, including big incentives for any plant completed by the end of 2012 that uses plant waste known as cellulose to make ethanol. Though "cellulosic ethanol" has been promoted as a promising source of motor fuel, no major plant has been built to produce it.

Existing tax incentives for renewable energy, including 10-year tax credits for solar, wind, small irrigation, some hydropower, landfill gas and biomass energy, would also be extended, along with incentives for energy-efficient homes and commercial buildings.

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