Katrina in Congress: Parties Struggle with Tax Relief for Damaged Region

We all want the government to help Hurricane Katrina victims, but agreeing upon the form of assistance is difficult.

Democrats and Republicans in Congress are battling over the second round of Hurricane Katrina relief legislation, with each party accusing the other of using relief efforts to further its agenda.

Katrina in Congress

Although tax writers Charles Grassley (R-Iowa) and Max Baucus (D-Montana) cooperated easily on the first round of Katrina-related tax relief legislation, which provided $6.1 billion in tax breaks to both individuals and small businesses, there is far less bipartisan teamwork this time around.

In particular, legislators are arguing over the size and shape of tax breaks to help the Gulf Coast region.

Republicans want the profits from the sale of assets like stocks, property, and other investments - called capital gains - to be tax free in the disaster areas. They believe that such a tax break will encourage investment and rebuilding in the affected region.

Democrats note that this solution is tied to the Republican goal of ending taxation on all capital gains. This year, GOP leaders have pushed to extend a temporary tax provision that reduces the tax rate on all capital gains.

Republicans believe that fewer taxes equal a stronger economy. Democrats argue that the Republican philosophy unfairly benefits the wealthy and point out that the Congressional Research Service has reported that lower tax rates on capital gains are not always effective in promoting investment in disaster areas.

Hoping for oil

House Republicans want to provide tax breaks for oil and gas refineries as well. Due to the size and force of Katrina, oil companies may be reluctant to build or rebuild refineries on the Gulf Coast, but Energy and Commerce Chairman Joe L. Barton (R-Texas) is ready to offer them generous incentives to stay.

To implement the plan, tax writers would increase the tax breaks offered in the energy bill, passed in the summer of 2005. It is not certain that Senate Republicans will support the measure, although Senators from Gulf Coast states would be likely to back it.

What Democrats want to do

Democrats want to expand the earned income tax credit for the working poor, the child tax credit, and the Work Opportunity credit, which provides a tax break for businesses that hire workers on welfare or food stamps.

At a Senate Finance hearing on October 6, 2005, Max Baucus suggested expanding these credits beyond Katrina-torn areas to the entire nation. Baucus pointed out that the poorest Americans are often the most hurt by disaster.

Republicans are resisting these suggestions, arguing that the earned income tax credit and child tax credit are already generous. Like Democrats, Republicans believe that their rival party is using Hurricane Katrina to further pet legislation.

Eyeing Louisiana

Both sides are concerned about proper use of the $62.3 billion in emergency funding appropriated for hurricane relief. Most of that money, $41.6 billion, has yet to be used, and lawmakers are worried that Louisiana officials will misappropriate their portion. Louisiana and New Orleans in particular, is rumored to have a corrupt government.

But on October 18, 2005, Louisiana officials promised to safeguard all federal assistance. Governor Kathleen Blanco pledged to hire a major accounting firm to audit Louisiana’s use of federal relief dollars. Blanco even suggested a second audit of the original audit.

Who should oversee the distribution and use of federal tax dollars to the hurricane-damaged states? What kinds of tax breaks does the area need, if any at all? How does the Congressional response to Katrina differ from the response to 9-11? What do you expect of your government by way of financial relief after a disaster?

What do you think?

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Article Posted on: 10/21/2005