Statement of U.S. Senator Dianne Feinstein
On Passage of the Tax Bill in the U.S. Senate
May 23, 2001

“Although this bill is far from perfect -- I do not think there is a member of the Senate who would not have drafted a different bill giving different weight to different provisions if given the opportunity -- It represents a compromise on a very difficult set of issues and does, in some areas, make progress.

While it does not provide the immediate economic stimulus I would like, for example, it does afford a wage earner providing for his or her family who makes less than $45,000 a tax cut of $300 this year, and $600 next year. And, additionally, although not phased-in as fast as I would like, the changes this bill makes to the marriage penalty and the child tax credit provisions will allow a working couple to avoid paying the marriage penalty simply for getting married, and provide them with child tax credits when they have children.

The President requested a $1.6 trillion tax cut over ten years. This reconciliation bill will cost $1.35 trillion -- still a sizable amount -- over 11 years, including $100 billion for economic stimulus. This bill contains several provisions which I believe are important to assure the continued long-term economic health of the American economy and which will benefit many hard-working American families:

It contains the creation of a new, retroactive, 10-percent tax bracket which has the effect of benefitting every single American who pays income taxes. Most of the benefit of the 10 percent bracket goes to people who earn less than $75,000 a year.

It contains an across-the-board tax cut, including reductions in the upper brackets. Significantly, this legislation does not go as far as the President’s proposal. The 39.6 percent bracket, for example, will fall only to 36 percent, not the 33 percent the President wanted. This is a fair compromise.

It provides significant marriage penalty relief although that does not go into effect until 2005. Marriage penalty relief makes sense for social reasons: It reinforces the important institutions of family and marriage. And it eliminates what many of us see as a vast inconsistency in our tax law. The marriage penalty simply makes no sense: Two people should not find that they pay more in taxes if they are married than if they stay single. Although not phased-in as quickly as many of us would like, this bill will eliminate this problem for many couples who now find they face a marriage penalty. I hope that the Conference Committee would find a way to implement this reform earlier than 2005.

It provides significant estate tax reform and repeal. I have long held the view that people should not be forced to pay a tax simply because of the death of a parent or spouse. In all too many instances under the current estate tax families are forced to sell a primary residence or go deeply into debt to hold on to a family farm or business simply because of the estate tax triggered by the death of a loved one. This legislation will first raise the unified credit to $4 million and lower estate tax rates and, then, in 2011, repeal the estate tax. Estate assets will not escape taxation under this approach. Rather they will be taxed at a stepped-up capital gains rate of twenty-percent if and when a family chooses to sell them. This will allow families to keep the family home, business, or farm and, I believe, represents real progress on this issue.

This is especially important for California because of high land and property costs. Under the present estate tax, the heir of a $3 million estate which includes a home or business or farm could pay $700,000, or 45 percent of the taxable estate value of $1.7 million in estate taxes, due immediately. In future years, because of astronomic increases in land and property values, this will affect many more Californians than in the past. A child who does not have the cash to pay the tax may be forced to sell the family home, business, or farm. I cannot support a tax where rates are so high that they force an heir to sell their inheritance simply to pay the tax on it, especially in the case of farms or businesses where taxes have already been paid on the income which was used to purchase the asset.

This reconciliation bill expands the tax credit for families with children from $500 to $1,000 per child; increases the amount of the credit that is partly refundable so lower income families can benefit; and it expands and simplifies the earned-income tax credit so it is available to many more low-income working families than it is today. For example, under the current rules a family with one child would have to earn at least $14,000 to have a fully refundable credit of $600. This bill will extend the credit to families with incomes of at least $10,000.

It provides incentives for parents to set aside money for their children's future education by expanding the education savings accounts contribution limit from $500 to $2,000; extends the employer-provided tuition assistance credit to encourage employers to help employees continue their education; and helps college students pay off their student loans by eliminating the 60-month limit on deductibility of student loan interest.

It includes pension provisions to provide an incentive for people to save for their retirement, including increasing the contribution limits for IRAs from $2,000 to $5,000 by 2011; increasing 401(k) contribution limits from $10,500 to $15,000 in 2010; and includes provisions to help provide retirement fairness for women, including allowing “catch up” contributions to retirement plans for individuals over age 50.

It includes a down payment towards fixing the Alternative Minimum Tax (AMT) problem, an issue that is projected to mushroom by 2010. More needs to be done to make sure that middle class families do not find that because of the AMT they do not receive the benefits promised under this tax cut package. But I am pleased that in taking this first step the Senate has recognized that this is a big problem, especially for states like California, and I look forward to continuing to work with my colleagues in the years ahead to fix this problem before it develops into a genuine crisis.

I have had two concerns about this approach taken in this legislation, however. First, that the costs of this tax bill after 2011 may be quite high – as much as $3 to $4 trillion by some estimates. That is why it was critical, for me to be able to support this legislation, that the “sunset” provisions remained in place and that the provisions included in this bill expire in 2011.

Although I fully expect that Congress will extend many, if not all, of these provisions, this provides us a critical opportunity to make a mid-course correction if, ten years from now, a different approach on these issues is called for.

Second, I want to make sure that the tax cuts we are considering here today will not endanger the projected surpluses or undo the hard work and hard choices of the past decade which have allowed us to eliminate deficits and pay down the debt.

That is why I supported the Amendment offered by Senators Bayh and Snowe to create a “trigger mechanism” which will allow us to slow-down the phase in of some of these tax provisions should we not meet our debt reduction goals. Although this bipartisan Amendment narrowly failed, I think that it sends an important message about our commitment to fiscal responsibility.

On the whole I think that the bill pending before the Senate today represents a fair compromise on a most contentious issue.

Today we are voting on a $1.35 trillion package, some $150 billion more than the Senate approved in the budget amendment last month with 65 votes, but still a fair package with many positive elements.

So let there be no mistake: This is a large bill, and represents a major change in the tax system. As this reconciliation bill goes to Conference, it is my sincere hope that the conferees understand that for myself, and, I believe, many of my colleagues, the package that we are voting on here today represents what we consider to be fair and balanced, and that we would have considerable difficulty supporting any changes which may threaten to upset this balance.”