Congress Approves 2009 Budget

by Mike Godfrey, Tax-News.com, Washington

17 March 2008

Congressional Democrats claim to have arrived at a fiscally responsible budget for 2009 which will provide vital tax cuts for low- and middle-income taxpayers while eliminating the federal deficit by 2012.

The Senate approved a USD3 trillion budget blueprint for the fiscal year which starts October 2008 early on Friday morning, by a vote of 51 to 44, with voting largely along party lines.

An earlier vote saw the Senate overwhelmingly support a proposal to extend certain of President Bush's temporary tax cuts (about USD340 billion worth), including the child tax credit, the marriage penalty relief and tax breaks for low-income earners.

However, a Republican amendment to extend all of Bush's tax cuts, such as the temporary lower rates of tax on dividends and capital gains, was rejected by the Democrat majority, which argued that the measures favor the wealthy at the expense of important social spending programs.

The Senate bill would also extend relief this year to middle-class taxpayers who have become liable to the alternative minimum tax, which was originally brought in to ensure that the country's wealthiest paid some tax.

The House of Representatives approved a similar bill in a 212-207 vote on Thursday - with all Republicans voting to reject the measures. The House bill also claims to be able to eliminate the federal deficit, but only by letting all of Bush's tax cuts expire at the end of 2010 in order to accommodate increases in spending on domestic programs.

Another difference between the two proposals is a USD35 billion provision in the Senate legislation for a supplemental economic stimulus plan, should the main USD152 billion plan approved earlier this year fail.

Budget legislation, debated annually by Congress, is non-binding and is designed to provide guidance for lawmakers as they consider new tax and spending bills.

Both versions for the budget must now be reconciled - although the more difficult questions on tax cuts and spending are not expected to be resolved until after a new President is installed in the White House following November's elections.

Democrat leaders in the House hailed the budget resolution as "fiscally responsible" by cutting taxes for those who need it most, while protecting vital spending programs and reducing the deficit.

"This budget charts a new direction for America," declared Rep. John Spratt, Chairman of the House Budget Committee.

However, Republicans, such as Paul Ryan, the Ranking Member of the House Budget Committee, contend that the Democrat Budget Resolution calls for "the largest tax increase in American history".

"By allowing tax relief enacted in 2001 and 2003 to expire, the Democrats will raise taxes on the American public by USD683 billion dollars," he argued.

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