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                        DEPARTMENT OF THE TREASURY
                             WASHINGTON, D.C.


July 20, 2000

The Honorable Tom Daschle Democratic Leader United States Senate Washington, D.C. 20510

Dear Senator Daschle:

The Administration supports marriage penalty relief, and has proposed a targeted and fiscally responsible plan in the budget to provide it. However, the Administration strongly opposes the marriage penalty relief bill that passed the House this afternoon. If this bill is sent to the President in its current form, his senior advisers will recommend that he veto it. This bill would cost more than $280 billion and be more expensive than either the House or the Senate bill over ten years. Together with the other tax legislation passed by the Congress this year, it would threaten our fiscal discipline and jeopardize our ability to strengthen Social Security and Medicare, pay down the national debt, enact well-targeted tax cuts, provide a long-overdue voluntary Medicare prescription drug benefit, and meet other pressing national priorities.

Our current strong fiscal position reflects both difficult choices and an honest approach to budgeting. The package of bills working their way through Congress would subvert the fiscal discipline that has helped to fuel the economic growth of the past eight years. The tax bills passed in the Congress are now approaching the size of the large tax bill that the President vetoed last year, and threaten our ability to pay down the debt and strengthen Medicare and Social Security. Furthermore, focusing on five-year estimates masks the true size of the tax cuts, which would drain the surplus just as the baby boom generation moves into retirement.

Fiscal discipline has been critical to the prosperity we enjoy today, and to the prospect of budget surpluses that we now project for years to come. But projections are inherently uncertain. This is not the time to abandon our path of fiscal discipline. Congress should provide a thorough accounting of how much it intends to spend this year.

Moreover, the House bills would primarily help those Americans who have already benefited most from our strong economic expansion, rather than focusing on working families. The total tax savings that would accrue to the 1 percent of Americans with the highest incomes would exceed those provided to the bottom 80 percent. This amounts to an average tax cut of about $16,000 for each family in the top 1 percent and less than $200 for each family in the bottom 80 percent.

Unfortunately, the conference marriage penalty bill is poorly targeted. Less than half of the cost of the bill would go to those who actually have marriage penalties. Moreover, although the cost of the bill appears relatively moderate because it includes a provision to sunset it after five years, it is wholly unrealistic to imagine Congress allowing marriage penalty relief to expire. As noted, the ten-year cost of this bill alone would be more than $280 billion.

In contrast, the President's tax cutting proposals would maintain our fiscal discipline while providing meaningful tax relief to a broad spectrum of low- and moderate-income families. Our budget proposals would provide significant marriage penalty relief targeted at those families who actually suffer penalties, and tax incentives for retirement savings targeted at the 75 million Americans who lack pension coverage. We have also proposed tax credits to assist families with their long-term care and child care needs, as well as tax incentives to repair and build schools and improve the environment. Two-thirds of the benefits of the major tax proposals in our budget would accrue to the middle 60 percent of the income distribution. We also support targeted estate tax relief that addresses inequities created under the current system.

Notwithstanding our concerns with this and other tax bills that together total over $700 billion, the President has offered to sign marriage penalty relief costing about $250 billion over 10 years if the Congress passes a plan that preserves the Medicare surplus to pay down the debt and passes a plan that gives real, voluntary Medicare prescription drug coverage that is available and affordable for all seniors. This balanced approach would ensure that we are taking prudent steps to allocate the surplus toward meeting the real needs we face, while maintaining fiscal discipline.

The Administration would like to work with Congress in the remaining days of this session to enact meaningful legislation that addresses the priorities of the American people. Our focus should be on strengthening Social Security and Medicare, enacting well-targeted tax cuts that maintain fiscal discipline, paying down the debt, and addressing other national priorities.


Lawrence H. Summers