Politics & Policy

Child Tax-Credentials

The Times, post-Raines, still has tax agenda firepower.

Conservatives everywhere were celebrating last week with the announcement that Howell Raines was forced out as executive editor of the New York Times. Raines had pushed the paper even further to the left, and did so in ways that were intended to be as irritating to conservatives as possible. So his forced resignation over the Jason Blair scandal was as sweet for them as Richard Nixon’s 1974 resignation from the presidency was for liberals.

But if any conservatives thought that the Times was going to stop being a thorn in their side, they quickly got a wake-up call on the child tax credit. David Firestone, the paper’s congressional correspondent, jumped on this story almost before the ink was dry on the new tax bill and made it an issue they had to deal with.

In brief, the story is this. The version of the tax bill that passed the Senate included a provision that increased refundability of the child credit, which is being raised from $600 to $1,000. Under current law, the credit is refundable for those with an income-tax liability less than the credit to which they are otherwise eligible. But refundability is limited to 10 percent of a taxpayer’s earned income above $10,500. It is scheduled to rise to 15 percent in 2005 and the Senate would have speeded up that increase to this year. The House had no such provision.

#ad#House and Senate conferees were all willing to raise the refundability limit in the final legislation, but were derailed by one senator, George Voinovich (R., Ohio). He and Sen. Olympia Snowe (R., Me.) are those principally responsible for shrinking President George Bush’s original tax plan from $725 billion to $350 billion. As their price for voting in favor of the budget resolution, which was necessary to get a tax bill through the Senate, they extracted a personal promise from Sen. Charles Grassley (R., Iowa), chairman of the Finance Committee, that no bill larger than $350 billion would come out of conference.

Based on Grassley’s promise, Snowe and Voinovich supported the budget resolution. But it turned out that there was some misunderstanding by Grassley on what he had promised. He thought that the $350 billion cap applied only to the tax cut; any spending provisions included in the legislation would be on top. This was important because $20 billion in aid to the states was necessary to get the vote of Sen. Ben Nelson (D., Neb.), and there was $10 billion in spending for the refundable portion of the child credit and other provisions of the tax bill.

Grassley and everyone else involved in negotiating the final tax bill thought that a $350 billion tax cut with an additional $30 billion in spending was permitted under the agreement. But at the last minute, Voinovich let it be known that he would vote against any bill whose total cost exceeded $350 billion. This meant that $30 billion had to be cut somewhere.

The conferees were in a tough position because the state aid absolutely had to be included, lest Sen. Nelson’s vote be lost. Senators Snowe and Blanche Lincoln (D., Ark.) made it clear that they were going to vote against the conference report even with the refundable child credit, which they supported, as they had done on the earlier Senate version of the bill. Consequently, Voinovich was in the driver’s seat. Conferees had no choice but to accede to his demands because his was the deciding vote. Among the provisions that got dropped was the one that would have speeded up the increase in refundability of the child credit.

The critical point is that if Snowe or Lincoln had stepped forward at this juncture, the child credit refundability speed-up would have been retained. Either one could have substituted for Voinovich and been the 50th vote, allowing Vice President Dick Cheney to provide the margin of victory. In fact, they could probably have gotten a lot more if they played their cards right. Nevertheless, both voted “no.”

The next day, Snowe and Lincoln were outraged to find that the child credit refundability increase was not in the bill that was sent to the president for his signature and have led the charge on its restoration. With the New York Times hyping the issue daily, Senate leaders quickly moved a bill making more of the child credit refundable, which passed by a 94 to 2 vote on June 5. The House likely will go along.

This episode teaches two things. First, don’t underestimate the New York Times. It is still capable of setting the national agenda. Second, senators who want provisions in tax bills should vote for them. If you vote against a bill, you shouldn’t expect to get anything out of it.

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