Tax-crazy Legislators Take the Easy Way Out
Through the years, Congress generally has been strongly supportive of legislation to help veterans with their education, so some people may be puzzled because of unusually strong opposition to such a measure in the House recently.
Such rewards for service to country generally do not stir a lot of controversy and usually pass by voice vote or under expedited rules.
That didn’t happen with the House bill to increase funding for veterans’ education. Opposition was strong and outspoken although the bill passed the House on a 256-166 vote shortly before the Memorial Day break.
It was not the idea of increasing funding for veterans’ education that set off the opposition, but the way the bill would be paid for. Revenue generated by a new surtax on high-income taxpayers is tagged for the payoff.
Dubbed the “Patriot Act” by House Democrats, the new measure would impose a 0.47 percent surtax on taxpayers with adjusted gross income of $500,000 or more ($1 million or more for married couples filing taxes jointly).
Information from the IRS Statistics of Income Division indicates the surtax would affect about 400,000 households. Congress’s Joint Tax Committee estimated it would raise approximately $52 billion over 10 years.
Some observers called the surtax the “Blue Dog Tax Hike,” because it was only at the request of Democrats that the veterans’ education was funded at all, said Ryan Ellis, tax policy director at Americans for Tax Reform in Washington, D.C.
Under Congress’s “PAYGO” rules, any new mandatory (entitlement) spending must be offset by spending cuts, tax increases, or both.
Thus far, the Congressional majority has chosen to enforce PAYGO by paying for higher spending with tax increases alone.
House Appropriations Chairman David Obey (D-Wis.) said in National Journal’s “Congress Daily” on May 16 he wanted an even broader tax because the American public has not been asked to sacrifice for the war, leaving the nation’s soldiers and their families to shoulder the load. But he said he lost that battle and taxing those earning more than $500,000 was the next best idea.
The surtax set off a flurry of reaction from Republicans, Ellis said. All but 32 of the 199 House Republicans voted against the measure, mostly because of the tax increase. President George Bush threatened a veto.
Americans for Tax Reform took the unusual step of double-rating a vote against the surtax in its annual “Hero of the Taxpayer” Congressional scoreboard. Also, ATR declared the income tax increase a violation of the “Taxpayer Protection Pledge,” which has been signed by all but a handful of House Republicans. In addition, a vote for the surtax was an automatic disqualification from receiving ATR’s “Hero” award for 2008, no matter what the member’s overall score happened to be.
Using IRS data, ATR calculated the surtax would affect approximately 325,000 small business owners. That is because 87 percent of tax returns with the surtax’s level of AGI have business income from sole proprietorships, partnerships or Subchapter S. Corporations, all of which pay tax on the individual 1040 form.
“It’s pretty cynical to pass a tax increase on small business owners and tell them to simply take it because it’s the patriotic thing to do,” said ATR President Grover Norquist. He suggested there are plenty of wasteful spending programs that legislators could have offset the veterans’ education spending with.
The fate of the surtax now lies with the Senate. That body has shown little appetite for tax increases.
Most House members voting against the veterans’ education bill likely would be leading supporters of a version without the surtax on small business. They might be hoping to get a chance to do that on a compromise should the Senate knock that funding provision out.
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