Hurricane Blows through Congress: Katrina Changes the Agenda

Hurricane Katrina has completely changed the legislative agenda. What was once tax cuts and Social Security reform is now Katrina, Katrina, Katrina. And even when Congress moves on to other issues, they will be subject to the disaster in the South.

Previous agenda

Before Hurricane Katrina, the White House and Republican Congress had planned to focus on trimming spending, confirming Supreme Court justices, and tax cuts, namely the repeal of the estate tax.

Apart from the Supreme Court confirmations, these issues have been postponed indefinitely, but the idea of spending and tax cuts takes on new meaning in the wake of Katrina.

Republicans planned to launch a bill that would repeal the estate tax altogether. Calling it the "death tax," Republicans argue that it is unfair to tax inherited wealth. The philosophy here is that someone who has accumulated a sizable estate through a lifetime of work should not have to pay taxes again at the time of death - their children should receive their full inheritance without the government stepping in.

According to this point of view, justice means being able to pass down economic power to your children.

Another point of view

Opponents of the estate tax say that repealing it would create an elite class of wealthy families, like an aristocracy, where wealth and privilege is handed down from one generation to the next, so successive generations would not have to demonstrate the ability and hard work of their parents, but would still be very well off.

This philosophy holds that wealth - and the political power that results from wealth - should not be inherited, but earned. This point of view recognizes that children of wealthy families are privileged and that they will still inherit a comfortable life from their parents (only estates worth 1.5 million and more are taxed and that amount will go up next year).

But these arguments are unlikely to take place on the floor of the House and Senate any time soon, because right now, legislators are focused on those who have nothing.

But when talks about the estate tax do resume, the conversation will have to include Katrina. So far, Congress has approved 10.5 billion for the relief and another 52 billion is on the way. With the cost expected to rise above 150 billion, members of Congress will have to think twice before cutting tax revenue, especially the estate tax, which would cost $290 billion over 10 years.

Katrina and the deficit

In July, President Bush announced that his budget policies had helped to decrease the budget deficit by $94 billion. Unfortunately, Katrina is cutting into that progress, since the relief effort is costing about $2 billion a day and the cost is added directly to the deficit.

Nevertheless, the White House says that Mr. Bush will still be able to cut the deficit in half, to $260 billion, by 2009. This suggests that the administration believes that the costs of Katrina will be absorbed in the next couple of years and won’t have a long-term impact on the deficit.

Spending cuts to Medicaid, food stamps, and student loans were part of the Bush administration plan to cut the deficit, but now lawmakers say they need to reconsider these options since flood victims will likely need these services.

In fact, Medicaid spending is expected to go up, as are other federal entitlement programs that help the poor.

Some Republican lawmakers would still like to see significant tax cuts, because they believe that cuts will stimulate the economy and generate much needed revenue.

Republicans and Democrats have starkly different philosophies on tax cuts. While Republicans believe that they help to generate spending and increase investment, Democrats feel that any economic gain does not outweigh the lost tax revenue, especially in a time of deficit. Further, Democrats charge that recent tax cuts benefit the wealthy only.

Do you think that Congress should cut taxes this year? What about spending? What should they do to generate funds for Katrina relief? Do you want a repeal of the estate tax?

What do you think?

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Article Posted on: 9/11/2005