September 23, 1976
Page 32180
Mr. MUSKIE. Mr. President, will the Senator yield me 5 minutes?
Mr. LONG. Yes.
Mr. MUSKIE. I appreciate that.
I regret that this amendment has precipitated a point with respect to the Budget Act which ought to be brought to the attention of the Senate. First of all let me put the revenue picture in the budget resolution before the Senate. The situation is this: The second concurrent resolution sets a floor of $362.5 billion in revenues. The Budget Committee has sent to the Parliamentarian the first budget status report for fiscal year 1977 pursuant to the Budget Act. It shows that taking account of revenue legislation already enacted or through conference revenues now are estimated to be $362.117 million or $383 million below the second concurrent resolution revenue floor.
The House of Representatives passed an unemployment insurance tax bill which would increase revenues by $387 million. A similar bill which would raise revenues by $400 million has been reported in the Senate. Because the current revenue figure is below the revenue floor all subsequent net revenue losing legislation would be out of order, at least until such time as the revenue floor been reached or exceeded.
There are several bills, Mr. President, yet to be considered by the Senate which lose small amounts of revenue, including the bill now before us. In future years I hope and expect that such bills can be enacted prior to the second budget resolution, but this year the heavy workload imposed on the Finance Committee by several major bills, and particularly the Tax Reform Act, has precluded early action on these small bills.
As chairman of the Budget Committee I am not inclined to raise a point of order against the consideration of these small bills this year. I wrote the chairman, the distinguished chairman, of the Finance Committee to that effect this morning. I ask unanimous consent that a copy of my letter to Senator LONG be printed in the RECORD at this point.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
U.S. SENATE,
COMMITTEE ON THE BUDGET,
Washington, D.C.
September 22, 1976
Hon Russell B. LONG,
Chairman, Committee on Finance,
U.S. Senate,
Washington, D.C.
Dear Russell: I am writing to call your attention to a situation which I hope we can discuss and attempt to resolve: that is the relationship to the Second Concurrent Resolution on the Budget of tax and tariff bills now on the Senate calendar or likely to be reported in this session.
As you know, Section 311 of the Budget Act provides a point of order may be made against any bill, amendment, or conference report the enactment of which would cause the revenue floor established by the Budget Resolution be breached. The present estimate of fiscal year 1977 revenue collections, after passage of H.R. 10612, the Tax Reform Act of 1976, and H.R. 10210, the Unemployment Compensation Amendments of 1976, is approximately $362.4 billion — about $100 million below the revenue floor established in the Budget Resolution passed by Congress last week.
A number of tax and tariff bills are now either on the Senate calendar, in conference, or are understood to be scheduled for immediate Finance Committee consideration that would reduce revenue collections further below the presently estimated level of $362.4 billion. While most of these revenue losing bills are of a minor nature, they all would be subject to a point of order under the Budget Act at the present time.
In addition, I understand there is at least one bill in conference, H.R. 1386, and one amendment scheduled for floor action, the property tax deduction amendment, this week that would result in extremely large revenue losses in subsequent fiscal years. Moreover, I understand the Congressional Budget Office estimates that the college tuition credit amendment to H.R. 1386 would reduce fiscal 1977 year revenue collections by $30 million and that the property tax deduction amendment to be offered by Senator Buckley would reduce FY 1977 collections by $20 million.
We recognize the fact that the Finance Committee may have been precluded by its heavy workload since last spring on the Tax Act and other bills such as revenue sharing from earlier consideration of these bills. Under these special circumstances, I hope we can reach an understanding under which we could discourage the offering of points of order against those of these bills which do not have substantial revenue effects in either the year of enactment or subsequent fiscal years. Pursuant to discussion of this matter by the Budget Committee at its meeting this morning, I have also written to Senator Byrd this morning, to ask that you and I might be given some time to resolve this matter before the Senate considers these bills. A copy of my letter to Senator Byrd is enclosed.
With best wishes, I am
Sincerely,
ED MUSKIE
Mr. MUSKIE. Mr. President, the point I make about the Buckley amendment is that as it was introduced and in the modified form which it took earlier today it was subject to a point of order, in and of itself, because it had a revenue loss impact in fiscal year 1977.
Senator BUCKLEY has amended it so that the 1977 impact of $20 million is no longer there, but, Mr. President, in fiscal year 1978 the revenue loss impact is $292 million, in 1979, $670 million, in 1980, $737 million, and in 1981, $811 million.
Mr. President, we discussed this in the Budget Committee the other day. I do not like to make points of order with respect to the minimal amounts in the bill itself. But when a revenue measure of this kind is introduced to such de minimis bills with such heavy out year consequences then it seems to me the Senate must focus on that implication. The effect of this amendment and also that of the Roth tuition amendment the other day is to increase budget costs down year in budget years, which we have not yet examined in the way we examine current budget years.
If we just excuse ourselves on the ground that because there is no current fiscal impact it is all right to drain our revenues in down years, then the budget process will eventually become worthless.
As I understand it, this amendment was not the subject of any congressional hearings or any studies. It has a heavy impact down year.
In and of itself, I repeat, as now modified, the Buckley amendment is not subject to a point of order because it does not impact in fiscal year 1977. But if it is accepted, it will become part of a bill which is subject to a point of order.
I do not like to make that point of order, because I do not like to use that kind of instrument against the de minimis amounts involved in the bill itself. But I do object, I must say, with all appreciation for the work that the distinguished Senator from New York has done on the Budget Committee, and I simply cannot stand silent on this point, which I think has precedent setting features for the rest of this session.
The ACTING PRESIDENT pro tempore. The Senator's time has expired.
Mr. LONG. I yield the Senator 2 additional minutes.
Mr. MUSKIE. There are other de minimis revenue bills on the calendar or coming to the calendar. If each of them has the potential for becoming a vehicle for this kind of revenue loser, whether in fiscal year 1977 or down year, I am going to resist. It is for that reason that I do not raise a point of order, because I cannot do so to the Buckley amendment. But I join the Senator from Louisiana in opposing the Buckley amendment for budgetary reasons on the merits of the issue itself as it has been discussed.
As I read the Buckley amendment, it does not change the tax liability of the landlord either to increase it or decrease it, so I assume that the landlord will continue to get the deduction and that the additional deduction provided will inure to the landlord.
I am not speaking as Budget Committee chairman on that point. That is simply my view of the merits on that particular issue. So I think it does tend to become a double deduction, and for that reason it is subject also to objection.
With that, I thank the Senator from Louisiana for giving me this opportunity to bring out the budget implications of this amendment, and I yield the floor.
Mr. BUCKLEY. Mr. President, I am very conscious of the arguments and concerns of the Senator from Maine. I, too, am a member of the Budget Committee; and I, too, believe that we must weigh very carefully what we do as it affects not only the fiscal situation of the year immediately ahead but also beyond that.
It is precisely for that reason, as he pointed out, that this would not become effective, for all practical purposes, until calendar year 1978. But it does outline a proposition of equity. It does provide Congress ample opportunity between now and the effective date of this amendment to review other programs that are designed to help tenants, to determine whether or not this is a more effective mechanism.
The fact is that it does elementary justice, and there are other areas where we can increase taxes to make up for the lost revenues. In fact, this is what we try to do.
I also suggest that as we lower the real cost of housing in older parts of our country, we will find that we will create incentives for renovation, incentives for the preservation of properties, and that the real impact on the economy of the United States and on the budget balancing process will not nearly reach the figures cited by the Senator.
Mr. TAFT. Mr. President, will the Senator yield for a question?
Mr. BUCKLEY. I yield.
Mr. TAFT. Is there any limitation on the Senator's proposal with respect to the application of the provisions relating to deductibility of real estate taxes based on the total amount of rental paid?
Mr. BUCKLEY. No.
Mr. TAFT. Does the Senator have any comment on the desirability or equity of perhaps limiting the amount of rental, at least that would be paid, that this would apply to?
Mr. BUCKLEY. The Senator from NewYork proceeds under the belief that the deductibility of property taxes is considered something legitimate that should offset taxation somewhere.
Property held for rental purposes, as a matter of fact, is the only property in which no real deduction is appreciated, is realized; and whether we are talking about luxury or simple housing does not affect the merits of the proposition.
Mr. TAFT. I appreciate the principles the Senator is talking about. I think there is a good deal to be said for them. I am somewhat concerned, however, about the fact that, in the case of luxury rental dwellings, we might be dealing with a rather large windfall for certain taxpayers which would be likely to occur in those instances.
Mr. BUCKLEY. I suggest that, as a practical matter, all people who work in that situation have long since converted to a condominium. At least, that is the experience in my city.
Mr. TAFT. But there would not be anything to prevent it.
Mr. BUCKLEY. But the fact is that that benefit is available, anyway, through the simple act of converting a rental property into a condominium.
Mr. TAFT. But would it apply to a large private residence already in existence?
Mr. BUCKLEY. The Senator means someone who is renting a large private residence?
Mr. TAFT. Yes.
Mr. BUCKLEY. We are dealing there with the fringe factual situation, not the practical situation. The fact is that two-thirds of the people who rent units in this country have incomes of less than $15,000.
Mr. MATHIAS. Mr. President, will the Senator yield?
Mr. HASKELL. Mr. President, will the Senator from Louisiana yield?
The ACTING PRESIDENT pro tempore. The Senator from New York has the floor.
Mr. BUCKLEY. I yield to the Senator from Maryland.
Mr. MATHIAS. I ask the Senator from New York whether he will comment on the conclusion reached by the Senator from Maine, that the deduction would not be lost by the landlord under the language he has proposed.
Mr. BUCKLEY. The language says explicitly that the tax liability of the landlord remains unchanged. If all the rents are coming in, it is a wash. But this was designed to protect the landlord against the situation where, having allocated one-fifth of the tax to a 5 apartment dwelling, if the tenant failed to pay that rent and he nevertheless had to pay the tax, he would be kept whole.
Mr. MATHIAS. The landlord would be kept whole?
Mr. BUCKLEY. Yes.
Mr. MATHIAS. But if the tenant claimed the deduction
Mr. BUCKLEY. You would have income in, income out. The posture of the landlord would be unchanged.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. BUCKLEY. I yield.
Mr. MUSKIE. I think that that point needs to be clarified. I read the language of the Senator's amendment:
The deduction allowed to a taxpayer under this section shall in no way affect the tax liability of his landlord.
So the landlord's position continues as though the amendment had not been adopted, and the additional deduction goes to the tenant.
If the interpretation of the amendment were as the Senator from New York has put it, where would the $811 million cost projected by the Congressional Budget Office come from, if it were simply a washout? There is an $811 million cost.
Mr. BUCKLEY. The $811 million cost would be in the reduction of the income tax liability of the tenants who are really paying the tax, anyway, through their rental payments.
Mr. MUSKIE. Well, now, that is — I would like to see the class of tenants. That is a heavy revenue loss.
Mr. BUCKLEY. Yes, it is a heavy revenue loss, because this is a heavy inequity we are redressing.
Mr. MUSKIE. I am interested in the revenue loss at this time. The Senator from Louisiana is expressing the other point, and there is an $811 million potential revenue loss.
Mr. LONG. Mr. President, let me show what this amendment will do. Mind you, if the amendment did what I thought at first it might do, I would be more favorably inclined to it. But if it did deny a deduction to the landlord, that waiting room would be filled with landlords, screaming that we are going to deny them the deduction which they are claiming now. The landlords do not complain about this provision, because they continue to get the deduction if they pay the tax.
How does it work out? Assume a man is in the 70 percent tax bracket. He may decide to leave this vicinity and move somewhere else. He is going to rent his home until he comes back. Let us say he has been appointed ambassador somewhere.
He paid $1,000 a year in taxes and he deducts that. That costs Uncle Sam $700 to allow him to take that tax deduction. Then he rents the house to another taxpayer also in the 70 percent tax bracket. That fellow under this provision also deducts the same $1,000. Uncle Sam is out another $700. So between these two men,on a $1,000 expense item, they euchre Uncle Sam out of $1,400 and make a profit of $400.
That reminds me of the situation that existed at the Mayflower Hotel back when we had an excess profits tax in World War II.
Three lobbyists had a round of drinks. The first one said "Give me the check. I am in a 90 percent tax bracket and it won't cost me but 10 cents."
The second one said, "No, let me have the check. I am on an expense account. It won't cost me anything."
The third lobbyist said, "No, let me have the check. I have a cost plus contract. I will make a 10 percent profit on it."
Can you not see these rich people standing in line to rent their homes to one another so they can get this double deduction? All that discriminates against the poor soul who is out there taking the standard deduction because it would not pay him, in most cases, to try to itemize in order to get this deduction.
In addition, the Senator would make this double deduction such an attractive tax advantage, that he might persuade millions of little taxpayers to change from the simple system of the standard deduction over to the complicated itemized deductions in order to claim this double deduction he is going to offer to people of this country.
This discriminates against homeowners. If a man owns his home, he gets to deduct the taxes one time. But nobody gets to deduct the taxes a second time. There is only one deduction. Only one person is benefited, the homeowner himself. Nobody else can get in on a second deduction. So it is just deducted once. It discriminates against home ownership.
It discriminates against all those who still find that, all things considered, they do just as well to take the standard deduction. Seventy percent of the people do, and not worry with all the complications in the code and are not required to keep all those records. It would make it so that any time a man goes to a hotel room, he would ask the hotel man, "Give me my receipt so I can claim this tax advantage because I stayed in this hotel room and take my share of the property taxes this hotel paid."
Mr. President, why do we want to get involved in this at all? Double deductions discriminate against low income people who ordinarily would claim the standard deduction, moves people away from simplification and toward complicated itemized tax returns, when have been trying to move them just the other way, toward a simplified form and away from the complications of itemizing their deductions. None of that makes any sense, Mr. President.
Furthermore, I do not know whether the budget can stand it, as Mr.MUSKIE so well pointed out to us. For all those reasons, Mr. President, it seems to me this should not be agreed to.
How much time remains, Mr. President?
Mr. CURTIS. Will somebody yield a minute?
Mr. LONG. I am glad to yield to Senator from Nebraska.
Mr. CURTIS. Mr. President, the amendment of the distinguished Senator from New York is entitled to full and further consideration. I do not know if we shall work out the answer here tonight or not. I do know, I am convinced of it, that the poor and the middle class people, particularly the poor people who have to have housing, with no way they can arrange to buy something, have to pay what is demanded of them. I am quite sure that they pay the taxes. I think in truth and in fact, the tenants do pay the taxes. Therefore, I think the proposition has merit.
I think the Senator from New York should be commended for it. Like a of these things, if we do not get it the first time, it can be explored again.
The ACTING PRESIDENT pro tempore. The Senator from New York is recognized.
Mr. BUCKLEY. How much time do I have left, Mr. President?
The ACTING PRESIDENT pro tempore. Nine minutes.
Mr. BUCKLEY. Mr. President, time is getting late. I would like to address myself to a couple of points that have been made.
We have heard a lot about the complexity of the paper keeping and one thing and another. The fact is that is this is something that has been studied a great detail, with great care. It been the subject of an exhaustive article in the Harvard Law Review. This particular bill has the blessings of the National Apartment Association and the New York Landlords Associations. They are the people who worry about the paperwork.
With respect to the complications for the tenant, again the New York Tenants Association, the California Tenants' Association, and others understand this legislation and do not feel it is too complicated for the people who would be saving the equivalent of up to one month’s rent a year.
We hear a lot about double deductions. The fact is that "double deductions" is a catch phrase. It is a very common thing in taxation that one item of expense may be, in effect, deducted by several different taxpayers.
Someone manufacturers a chair. He pays for lumber. He deducts the cost of that lumber. He then sells that chair for a profit to a business. That business deducts the cost of that chair, which includes the cost of the lumber.
We are talking practical consequences, and the practical consequences of this amendment are two: No. 1, the landlord neither gains nor loses. No. 2, every tenant having an income of $5000 or more gains by having the cost of his housing reduced, because, for the first time, the tenant will be receiving the benefit of the property tax deduction that he is, in fact, paying for.
Mr. President, I think that the issue is clearly known, clearly explained, and I am willing to yield back the remainder of my time.