In This Issue Senate Democrats Set Agenda Tax Cut Update Estate Tax Repeal and the States Senate Governmental Affairs Committee Shifts Direction Nonprofit Amendments to Campaign Finance Reform Bills Administration Signals Changes to Charitable Choice Proposals Tech Help: Strategic Fundraising Through E-mail SIDE BAR: Taxes: The Rich Keep Getting Richer; And The Poor Get Poorer Nonprof Sector: Nonprofits Opposing Repeal of the Estate Tax; REGS:Oppose John Graham's Nomination to OIRA Administrator Announcements: U.S. Dept. of Education CTC Program Issues Request for Proposals Senate Democrats Set Agenda Last week the Senate made the unprecedented switch from Republican to Democratic control during the congressional session. While the transition is still unfolding, the Democratic leadership has begun to identify its legislative priorities. Senate Majority Tom Daschle (D-SD) listed his top priorities. These include:

• Completion of the education bill, S. 1, the Elementary and Secondary Education Act Authorization bill.
• The Patient of Bill of Rights (S. 283), which could be taken up as early as the week of June 18. S. 283 is co-sponsored by Sens. John McCain (R-AZ), John Edwards (D-NC), and Edward Kennedy (D-MA). It would provide a range of protections for people in managed care plans and would allow lawsuits for treatment denials or delays. It is opposed by GOP leaders. Republicans are expected to offer a number of amendments to either change the bill to their liking or kill the bill. Some of these amendments are likely to be additional tax provisions such as expanding medical savings accounts.
• Appropriations bills. Daschle pointed out that Congress is already behind schedule on completing the 13 appropriations bills for this year. He noted that the Senate would proceed immediately on these bills even though the House is supposed to act first on appropriations. The budget resolution with its $661.3 billion limit on discretionary spending will be very difficult this year, especially if Congress provides money for prescription drugs, military spending, or any other new items. In fact, the spending cap does not even provide for inflation and other adjustments. Nonetheless, Daschle has said he will live within the caps or identify offsets for exceeding it. As Daschle was making this announcement, the House and Senate Appropriations Committees released the subcommittee allocations, called 302(b)s. To soften the blow slightly, the Senate allocated the $5.3 billion reserved for emergency spending, making its figures a little higher than the House's.

Although Daschle noted that there are only 59 legislative days until the end of the fiscal year, he hopes to get to other priority areas. These include: prescription drug benefits for Medicare recipients, minimum wage increase, hate crimes legislation, and election reform. Some Democratic staff members think that minimum wage bill will follow the Patient Bill of Rights, but this might get derailed because of Republican plans to attach a range of additional tax cuts to the bill. Even as Democrats were setting the legislative agenda, there was still debate over the rules governing the operation of the Senate under Democratic leadership. It is expected that Democrats will hold a one seat majority on every committee, reflecting the majority it holds in the Senate. Earlier last week, Republicans threatened to filibuster the resolution setting these ground rules unless they received special rules for expediting consideration of judicial and executive nominations. However, by the end of last week those threats had subsided. A resolution is expected to pass some time this week. Tax Cut Update As most everyone knows by now, President Bush signed HR 1836, the "Economic Growth and Tax Relief Reconciliation Act of 2001" into law Thursday afternoon, June 7. There was relatively little rejoicing in the country for the biggest tax cut in twenty years, since the bill includes something for everyone to hate. The tax bill:

• Is slanted towards wealthier tax payers;
• Dramatically increases the complexity of the tax code;
• Is heavily back-loaded with different provisions that are phased in and out-like a very odd type of musical chairs--in different years;
• Only addresses the Alternative Minimum Taxes for a few years thus making many middle income families face a higher tax rate (ironically because of a lower marginal rate) when the AMT adjustment expires;
• And, the last absurdity, on December 31, 2010, the tax cut disappears and taxes revert back to the law that existed Thursday morning, before the President set his pen to paper;
• P.S., even the "rebate," it turns out, won't apply to 34 million taxpayers since people with the lowest incomes will not be eligible.

Even though the top marginal rate wasn't reduced as much as the President and the House would have liked (though other adjustments in deductions and exemptions make it a sweeter deal for those in the 35% tax bracket), even though the bill is ridiculously complicated, and even though it expires at the end of 2010, conservative supporters of the tax bill are putting the best public face on it, while revealing the real impetus behind a tax cut (besides pleasing wealthy folks). As House Majority Leader Dick Armey says about the effects of the tax cut "…perhaps most importantly, Washington bureaucrats will have less of [your tax money] to spend." The tax bill accomplishes that goal very well. Even better for accomplishing conservative goals to whittle away the government would be to make the tax cuts permanent and to push for even more tax cuts, especially since business interests didn't get many perks from this tax bill. House Ways and Means Chairman Thomas (R-CA) has vowed to raise legislation soon making the tax cuts permanent. Democrats (and a few Republican fiscal conservatives), on the other hand, continue to point out the fiscal irresponsibility of the tax cut, based as it is on a $5.6 trillion dollar surplus over the next ten years that may or may not materialize. Democrats are also highlighting the fact that other government spending will be squeezed because of the high cost of the tax cut. Rep. Armey is right-the tax cut along with the bipartisan resolve against using the Medicare or Social Security surpluses for anything but debt reduction, practically guarantees cuts in government programs, as well as severely limiting funds for new initiatives, like prescription drug coverage or education. Other tax cuts that would actually benefit low and middle income people, or tax cuts that would encourage charitable giving, like the allowance for non-itemizers to deduct charitable contributions, are largely precluded by this tax cut. Any new tax legislation must offset (i.e., there must be a reduction in mandatory spending or an increase in other taxes that is sufficient to cover the loss of revenue). Given the huge revenue loss that the tax cuts would cause in the second decade if they are extended--some estimates as high as $4 trillion-- the sooner the bill is made permanent, the lower the ten year cost estimate. Given the new Democratic majority in the Senate it seems unlikely that any effort to make the tax cut permanent would succeed. At the same time, it is unlikely that much can be done any time soon on rolling back any of the tax cuts, since the Senate is so evenly divided. The future of the tax cuts will depend on which party is a majority in Congress during the next ten years and on whether the anticipated surpluses materialize or new estimates are larger or smaller. (The Congressional Budget Office is due to come out with new ten year estimates in July, and some analysts believe that underlying assumptions may be adjusted so that the estimates are even higher, thus allowing the argument to be made for more tax cuts.) Actual budget shortfalls or decreased estimates will raise the opportunity to roll back some of the tax cuts. "Extra" money in the budget or higher estimates will probably bring a push for more tax cuts. (While the budget rules require offsets in the form of decreasing mandatory spending or raising taxes, this rule has been largely ignored if there is a surplus that can be used.) While we can't control the surplus estimates and have limited control over the make-up of Congress, the third element of opportunity is to raise awareness about the tradeoffs that become necessary when policymakers cut federal revenue by cutting taxes. Many Americans are far more concerned about other priorities that the government should spend its resources on-a host of other needs that vary from prescription drug benefits to education to the energy crisis to global warming to the challenge of a rapidly aging population. If it becomes clear that the tax cuts make these priorities impossible, and peoples' strong concerns can get communicated to Congress, we could also see a rolling back of some of these tax cuts and waning desire to enact new tax cuts. Government domestic spending as a percentage of the Gross Domestic Product is already at its lowest point since 1963. And we aren't paying higher taxes. In other words, the tax cut fight is not over, but has only just begun. Back to Top Estate Tax Repeal and the States The estate tax "repeal" exemplifies some of the worst features of the overall tax bill. There is a complicated phase-in of increases in the exclusion and reduction in the highest marginal rates that will be a boon to those with the largest estates, but are not aimed at the small businesses and farms that were touted as being the most hurt by the estate tax. There is a one-year window (January 1, 2010 through December 31, 2010) when heirs will owe no estate tax (A good year to die?). In addition, during the year of repeal, the gift tax will remain in effect, divorced from the estate tax, and a complicated scheme will go into effect to charge capital gains tax on assets that are subsequently sold by an heir based on the original value of the asset, rather than the value of the asset when it was inherited. Thus, a widow, who under the old law could have received an unlimited inheritance from her spouse and would only have been taxed capital gains on her appreciation value, will now be penalized by higher capital gains taxes. But besides these negative consequences and more on which OMB Watch has already reported, the estate tax provision includes a provision that will cause huge losses to states. In addition to the loss of federal revenue (which was kept to a minimum by the slow phase in and only one year of repeal) and losses in charitable contributions and foundation bequests, states stand to be the really big losers from estate tax repeal. States will see the demise of their state "pick-up" tax credit in the first four years of repeal-it is 25% less in 2002, 50% less in 2003, 75% less in 2004, and 100% repeal of the state tax credit will occur in 2005. States will get no revenue from the state pick-up tax credit from 2005 through 2011, a full seven years (after which the entire tax bill sunsets). Loss of the estate tax credit and other changes in individual income tax represents "one of the single largest revenue hits to the states ever" according to Frank Shafroth of the National Governor's Association as quoted in Stateline.org, on June 7, 2001. The NGA estimates a loss of $69 billion over the next ten years, based on the overall tax bill. The Center on Budget and Policy priorities estimates that last year alone, states got $5.5 billion from the federal estate tax state credit and in the year of full repeal of the estate tax, the losses would be $9 billion. Other estimates are even higher. Citizens for Tax Justice estimates a loss of $18.5 billion a year just from repeal of the estate tax, and an additional $16.5 billion a year from losses in individual income taxes made possible by loopholes opened when the estate tax is repealed, for a total of $35 billion a year in loss of state revenue. Why? This was another of the various and devious ways legislators thought up to reduce the cost of the overall tax bill…at the expense of state revenue. Back to Top Senate Governmental Affairs Committee Shifts Direction For the last six years, the Senate Governmental Affairs Committee has given high priority to regulatory "reform" legislation that would impair the ability of federal agencies to protect public health, safety, and the environment. Now Sen. Joseph Lieberman (D-CT), the leading opponent of this effort, prepares to chart a different course as the committee's new chairman. First, Lieberman intends to hold several hearings on energy issues, the first (on June 13) to examine the effects of deregulation of the electricity and natural gas industries and the second (on June 20) to look into the performance of the Federal Energy Regulatory Commission. "I also want to focus the full committee's attention on the efficiencies promised by a well-coordinated electronic government, the Bush Administration's plans for regulatory rollbacks, the need to ensure a talented and capable federal workforce, and reauthorization of the computer security law, and the Paperwork Reduction Act," Lieberman said in a HREF="http://www.senate.gov/~gov_affairs/060701_lieberman.htm">statement outlining the committee's goals. Back to Top Nonprofit Amendments to Campaign Finance Reform Bills Amendments that would protect nonpartisan communications by charities were recently submitted by OMB Watch to Rep. Christopher Shays (R-CT) and Marty Meehan (D-MA), co-sponsors of campaign finance reform legislation in the House of Representatives (HR 380). In separate meetings over the past few weeks both Shays and Meehan expressed general agreement with concerns raised by representatives of 501(c)(3) organizations, but said specific changes would have to be carefully reviewed to ensure that no new loopholes are created. OMB Watch has objected to overbroad language passed by the Senate (S 27) that would prohibit TV, radio, cable or satellite broadcast of messages that refer to federal candidates during an election or primary season (with a limited exception for social welfare organizations and PACs). Similar language is contained in the Shays-Meehan bill. The purpose of these provisions is to address skyrocketing spending on partisan campaign ads that focus on issues and do not directly urge voters to support or oppose candidates, escaping regulation under current law. However, the strict language also covers communications by charities that have no electoral purpose or impact, and nonpartisan voter turnout and education activities. For example, under McCain-Feingold, a charity could not announce a candidate debate on the radio through a public service announcement, or air the debate on cable access TV. The purpose of the OMB Watch amendments is "To encourage greater participation in the electoral system on a nonpartisan basis, make impartial information about candidates available to voters and avoid prohibitions on non-electoral public education and grassroots lobbying activities of charities so that all sectors have a meaningful opportunity to participate in the democratic process." Two options are presented: a general exception for organizations exempt under IRC Section 501(c)(3) and specific exemptions for nonpartisan participation, public education and grassroots lobbying activities. The House and Senate campaign finance bills differ on issue advocacy in two respects:

• McCain-Feingold bans corporations and labor unions from referring to federal candidates in all broadcast communications, while the prohibition in Shays-Meehan is limited to broadcasts that are paid advertising.
• Shays-Meehan recognizes nonpartisan voter education activities by including an exception for voter guides.

The OMB Watch amendments propose amending McCain-Feingold's issue advocacy section by limiting its application to paid advertising. This change would narrow the impact of the limitation on free speech and focus on the problem of soft money funded advertising. The amendments also extend the voter guide exception in Shays-Meehan to candidate debates and forums, voter registration and get out the vote activities. The final bill should contain both amendments. OMB Watch proposes elimination of the Wellstone amendment to McCain-Feingold, which limits the issue advocacy exception for social welfare orgnaizations and PACs to communications where the audience is not primarily made up of voters in the district of the federal candidate mentioned in the communication. This would protect genuine issue advocacy by social welfare organizations, which would be required to disclose expenditures and donors. The House is expected to vote on a campaign finance reform bill after the July 4th recess. Currently the bill is being considered in three committees: House Administration, Judiciary and Energy and Commerce. Last week Sen. John McCain (R-AZ) told reporters that the change in leadership in the Senate will not change reformers' strategy, which is to avoid a conference committee. For the full text of the OMB Watch amendments click here. Back to Top Administration Signals Changes to Charitable Choice Proposals The Senate Judiciary Committee's hearing on the legal implications of charitable choice legislation was held last Wednesday (June 6th) in the midst of the switch from Republican to Democratic leadership. The hearing adjourned temporarily as the Senate leadership changed, and when it resumed only Sen. Charles Schumer (D-NY), who is not the chair, was present for the remainder of the hearing. The witnesses covered topics and opinions already expressed in the various hearings in the House of Representatives over the past few months. However, there was one important new development: Sen. Rick Santorum (R-PA), who has been the Bush administration's charitable choice point man in the Senate, said he is considering a requirement that religious organizations set up a separate entity under IRC 501(c)(3) to carry out social services under federal grants. This would truly put religious organizations on equal footing with all other 501(c)(3) charities. For text of statements in the Senate hearing click here. In a hearing held the next day before the House Judiciary Subcommittee on the Constitution, Carl Esbeck, Senior Counsel to the Deputy Attorney General, proposed changes to existing charitable choice legislation that would prohibit use of federal funds for religious "instruction, worship or proselytization." Any such activities offered by a religious organization would have to be voluntary and offered separately from the federally funded service. Religious grantees would be required to certify compliance with this provision. Douglas Laycock of the University of Texas Law School testified that the rights of program beneficiaries to secular alternatives for service cannot be protected absent sufficient federal funding for multiple programs, stating "We have not succeeded in guaranteeing even one provider for all the people who need the services. How can we plausibly guarantee a choice of providers?" For full text of the witness testimony in the House hearing click here. The House will address charitable choice issues again on June 14th when the Ways and Means Human Resources and Select Revenue Measure Subcommittees will hold a hearing on HR 7, the Community Solutions Act, the charitable choice bill offered by Rep. J.C. Watts (R-OK) and Rep. Tony Hall (D-OH). That bill also contains charitable giving provisions, such as the nonitemizer deduction. At this time House leadership is pushing for consideration of HR 7, rather than separate charitable giving bills, including the nonitemizer bill sponsored by long time proponent Rep. Phil Crane (R-IL). For OMB Watch's position on charitable choice, click here. Back to Top Tech Help: Strategic Fundraising Through E-mail One of the reported promises of the Internet for nonprofits has been the ability to better connect with desired audiences through informaiton and communications tools that are equally cost-effective and effective. Yet, as groups await evidence that third-party onine services can effectively be integrated into long-range strategic planning around outreach and retention of supporters in advocacy and fundraising alike, e-mail has generated some promising data, suggesting that sometimes simpler is better, if coupled with actual nonprofit planning offline. Read more in NPTalk... Back to Top The Rich Just Keep On Getting Richer The top 1% of American households paid 23% of all federal taxes in 1997, a growth rate of 48% over the period from 1979 to 1997. However, the reason for that increase is that the wealthiest were getting wealthier and thus having a higher income on which to pay taxes. The actual effective tax rate paid by the top 1% declined-from 37.3% in 1979 to 33.3% in 1997. The richest 1% paid more taxes but only because of higher incomes-their actual tax rate dropped. The after-tax income of the wealthiest grew dramatically-from $263,700 to $677,900, a 157% increase. And The Poor Get Poorer During the same period, the poorest 20% of American household had after-tax income that fell by $100. Read the CBO report and a Center on Budget and Policy Priorities analysis. Nonprofits To Preserve the Estate Tax The coalition Nonprofits to Preserve the Estate Tax met last week to discuss the outcomes of the tax bill. The conclusion is that the coalition will continute to campaign to stop repeal of the extate tax. For more information, click here. Hearings on campaign finance reform: Tuesday June 12: Crime Subcommittee of House Judiciary Committe, hearing on constitutional issues 2pm 2141 Rayburn House Office Building. Thursday June 14: House Administration Committee hearing on constitutional issues relating to campaign finance reform 11am 1310 Longworth House Office Building. Oppose John Graham's Nomination to OIRA Administrator Oppose John Graham's pending nomination to head OMB's Office of Information and Regulatory Affairs. Click Here for more information. U.S. Dept. of Education CTC Program Issues Request for Proposals The U.S. Department of Education has announced a new round of grants under its Community Technology Centers program. Proposals are due July 16, 2001. There is a reported US$32 million available for U.S. community technology centers under this program. Nearly 200 one- year grants, between US$75-300,000, are available for groups meeting the eligibility guidelines. The grants will be for one year. Cost sharing of 30 percent is required. Eligible applicants include state and localeducational agencies, tribal governments, colleges, libraries, and other public and private nonprofit or for-profit agencies. For the complete announcement, click here. Interested applicants are also encouraged to access technical assistance information available through the America Connects Consortium. The America Connects Consortium works to provide information, training, technicalassistance, public attention, and new resources to U.S. community technology centers. It attempts to find and apply the best tools, techniques, and teaching methods available, and helps to bring together community technology stakeholders across different sectors. OMB Watch Job Opportunities The following positions are currently open at OMB Watch. Descriptions and qualifications for each position are linked below:

• Staff Assistant/Webwriter
• Junior Policy Analyst (Regulatory/RTK)