Congress left town for the month-long August recess having failed four times to act on a popular package of tax cuts that are set to expire at the end of 2008. With only three weeks in session left in September before the door is expected to close on the 110th Congress, and with remaining differences between opposing sides, there is still significant work to be done before $123 billion in tax cuts can become law. The hold-up in Congress on this legislation is once again the U.S. Senate. During June and July, the Senate voted four times to begin debate on the tax "extenders," a $123 billion tax cut proposal over the next ten years. The latest version of this proposal includes a one-year "patch" for the Alternative Minimum Tax (AMT) and $56 billion in other tax cuts that will benefit a wide variety of individuals and businesses, from motor sport race track operators to married couples, from teachers to mine operators, and from anyone who pays state and local sales taxes to children's toy arrow producers.

With minor exceptions, the underlying tax cuts within the package are widely supported by both Republicans and Democrats. To be sure, some of the tax cuts have likely lost their usefulness in a wider economic context, and Congress failed again to adequately review whether some aspects of the bundled "extenders" package should be discontinued. At this point in the congressional calendar, the opportunity for such a needed review has passed. Delay in enacting this bill is not due to its content, but rather Democrats' attempts to structure it as a fiscally responsible piece of legislation.

The House passed its version of the extenders package on May 21 by a vote of 263-160. House Ways and Means Committee Chairman Charles Rangel (D-NY) constructed a fiscally responsible bill by including $55 billion in revenue offsets that would increase taxes on hedge fund managers and modify tax rules on corporations. The Bush administration issued a veto threat opposing the revenue offsets, even as over 300 corporations wrote to the U.S. Senate leadership making it clear that the extenders package was such a high priority that they would rather have it paid for if that would enable its passage.

Senate Majority Leader Harry Reid (D-NV) attempted to put the House-passed bill before the Senate for consideration three times (on June 10, June 17, and July 29), but each time, a group of at least 40 Republicans blocked consideration of the bill.

As the August recess approached, seeing that the House bill could not reach the floor for debate, Senate Finance Committee Chairman Max Baucus (D-MT) introduced his draft of an "extenders" bill, including a "patch" for the AMT, which was absent from the House-passed bill. Reid attempted to bring that bill to the Senate floor on July 30, but he was blocked again. The reasons for blocking this bill became less about a debate over the inclusion of offsets or the AMT in the "extenders" bill and more about a political struggle between the two parties over gas prices and energy policy heading into the fall elections. Though Congress has left town, the parties continue to maneuver in the media in order to blame the other side rather than pass legislation.

Even through Reid cannot get the tax extenders bill on the Senate floor, there are behind-the-scenes negotiations that may be making some progress on finding a compromise on the question of offsets in the "extenders" package. Baucus' package includes just over $54 billion in offsetting revenue increases for portions of the bill. The $63.5 billion AMT patch was not offset, leaving less than half (approximately 44 percent) of the bill paid for. In order to comply with Senate pay-as-you-go (PAYGO) rules, the entire cost of the bill would need to be offset, a near-impossible goal given Republican opposition to offsetting any tax cuts.

Yet Senate Finance Committee Ranking Member Charles Grassley (R-IA) appears to be willing to allow the $54 billion in offsets included in the draft bill, assuming Democrats exempt any provisions impacting individuals from PAYGO and use cuts in future years' discretionary spending to offset additional tax cuts. While Baucus has announced this proposal concerning discretionary spending is a non-starter for Democrats, Grassley's acceptance of the pay-fors already in the bill is a step in the right direction.

Even though less than half of the proposed bill is paid for, there are a number of very popular provisions within the "extenders" tax cut package, including a $250 deduction for teachers' expenses and tax-free distributions from IRAs to charities for those over seventy-and-a-half years old. Most notably, both the House and Senate have included an expansion of the Child Tax Credit (CTC) by lowering the income threshold that parents must meet to qualify for the refundable portion of the tax credit, from $12,050 to $8,500.

This change would benefit over 13 million children, according to data from the Tax Policy Center. The Center on Budget and Policy Priorities has also pointed out that many children who stand to benefit come from families with parents who work year round, include individuals with a disability, and/or contribute to a broad range of jobs in critical services that often pay low wages, such as caring for the elderly or teaching young children. This is a progressive change in the tax code long sought by a wide variety of low-income, religious, direct service, labor, child welfare, and poverty advocates.