On September 25th, Representatives Ernest Istook (R-Oklahoma) and William Delahunt (D-Massachusetts) held a press conference with state lawmakers and city leaders on the introduction of legislation giving states the authority to collect state sales and use tax from out-of-state sellers. Also present at the press conference were organizations representing retailers, small businesses, counties, cities and state legislators.

The legislation, which has bi-partisan support in both chambers of Congress, has not yet been formally introduced. Many states and localities have long clamored for legislation permitting states to collect sales and use taxes from remote sellers. Currently, states lack the authority to collect such taxes from out-of-state sellers. Upon passage of this legislation, all states that simplify their sales tax system and comply with the ‘Streamline and Use Tax Agreement’ adopted in November of 2002, would be able to require remote sellers to collect and remit sales and use taxes. States that want to join the multi-state compact would have to implement uniform simplification standards and a uniform sales tax code that is the same for both Internet and non-Internet retailers.

The followed organizations have endorsed the proposal: the E-Fairness Coalition, National Governors Association, National League of Cities, National Council of State Legislators, National Association of County Officials, National Association of Real Estate Investment Trusts, International Council of Shopping Centers, National Retail Federation and the International Mass Retail Association.

Representative Istook commented that the bill will help local communities solve their own problems by allowing them to boost revenues. To placate small business advocates, Istook maintained that the bill would exempt businesses with total gross sales of under $5 million from having to collect sales tax. Also, retailers will be compensated for costs related to collection of out-of-state sales taxes.

Congressman Delahunt, who emphasized the bi-partisan support for the legislation, stated that the bill is not a tax increase, but rather a simplification and streamlining of our current tax system. Delahunt stated, “the bill treats remote sellers like Main Street sellers by removing the inequities and unfair advantages that remote sellers currently have.” Additionally, Delahunt feels the legislation will allow states, most of whom need fiscal relief, to better rely on sales tax for a source of revenue. Delahunt mentioned that his home state of Massachusetts lost $271 million in sales tax revenue in 2001 because remote sellers failed to collect and remit Massachusetts state sales tax.

Pennsylvania State Representative David Steil (R-31), speaking on behalf of the National Council of State Legislators, asserted that state sales tax revenues are decreasing because of changes in our economy. Steil added, “Congress has the chance to provide fiscal relief to the states without actually affecting the federal treasury.”

Spearheading the effort in the Senate are Senators Byron Dorgan (D-North Dakota) and Mike Enzi (R-Wyoming), both of whom were unable to attend the press conference. However, in a statement sent out before the press conference, Dorgan said “this bill has two goals – first it encourages state and local governments to pursue sales and use tax simplification. Secondly, once they’ve done that, it authorizes them to collect taxes already due.” Enzi also made some comments before the press conference. The Wyoming Republican stated that “this bill would help spur economic growth in communities across the country because sales tax revenue helps pay for our schools, police officers, firefighters and more. Streamlining the sales and use tax system should make it easier for both online and Main Street businesses to comply with the complicated tax system. The resources that are now spent on compliance could then be used, among other things, to hire new people and buy new equipment.”

Commenting on the prospect of bill action before Congress adjourns this year, Ernest Istook told reporters that consideration of the bill would most likely have to wait until early next year. However, Istook thinks the bill has the requisite votes for passage and is convinced that there are plenty of Republicans in the House who will support the legislation. Istook also said that the White House has yet to outline a position on the bill, though, the Oklahoma Congressman is in talks with the President’s staff on this issue.

The House passed legislation to extend cash assistance programs and child care grants to states for six months in order to get lawmakers more time to reauthorize the 1996 welfare law.

Lawmakers passed the measure by voice vote, extending the program through March 31, 2004. Congress has extended the law four times within the past year as lawmakers struggled to rewrite the program. The Senate is expected to clear the legislation later this week.

The legislation would also extend payments for six months to certain low income Medicare beneficiaries who also are covered under state Medicaid programs. The premiums - $58.70 a month - pay for doctor visits and other outpatient services.

A House reauthorization bill (HR 4) tracks with a Bush administration proposal that would eventually increase the work requirements to 40 hours a week. The bill was later amended by the Senate. The Senate changes would alter the work requirement to 34 hours a week, with a mandate of 24 hours a week for parents with children under age 6.

The Senate bill contains the $200 million for marriage promotion programs, a priority for the White House. Like the House measure, the Senate bill would require states to have 70 percnet of their welfare client base working by 2008.

The Senate is not expected to take up the measure until next year, when Democrats are likely to offer an array of amendments, including an attempt to boost child care funding by a much higher figure than what Senator Snowe is prposing this year. Sen. Snowe is proposing to increase child care funding by an additional $5 billion to $6 billion during floor debate.

Republican leaders put new pressure on the Medicare conferees imposing an Oct. 17 deadline for producing a conference report. President Bush is also expected to weigh in the conferees as well. The Oct. 17 deadline suggests where the Republican leadership senses the cutoff point is for getting anything done before the end of the session.

Conferees will be expected to reach accord in several contentious areas, including how many private health plans will be allowed to offer drug coverage and the size of envisioned payment increases for physicians, hospitals and other Medicare providers. They also will be asked to reach an agreement on whether to link some Medicare benefits to beneficiaries' incomes - a concept known as "income regulating".

The deadline leaves relatively few legislative days on the congressional calendar to resolve differences between the bills.

Talks this week in conference have focused on health plan competition, including how Medicare administrators would divide the country into geographic regions and the number of plans that could compete to offer benefits to Medicare recipients in those regions. Next week the conferees are discussing how to handle dual eligibles, the some 6 million elderly who qualify for both Medicare and Medicaid.

On Wednesday, September 17, the Senate Finance Committee approved by voice vote the Chairman's mark extending the government's authority to spend money from the Highway Trust Fund under the Transportation Equity Act for the 21st Century (TEA-21) for 5 months. The Chairman's mark also included language repealing the reduced tax rate on sales of fuel for blending with alcohol and gasohol, and imposing the full rate of excise tax on alcohol-blended fuels.

The controversial proposal is Sen. Grassley’s bill, S. 1548, the Volumetric Ethanol Excise Tax Credit (VEETC) Act of 2003 and replaces the reduced rates with per-gallon excise tax credits for alcohol and biodiesel fuel mixtures and provides for outlay payments to producers of alcohol and biodiesel fuel mixtures and users of 100 percent alcohol and 100 percent biodiesel fuels. The tax break was established to encourage the use of gasohol, but some lawmakers have long complained that the Highway Trust Fund loses an estimated $2 billion a year in potential revenues because of the tax break.

The Finance Committee’s bill would repeal the tax break — putting more revenue into the dedicated trust fund — and replace it with a tax credit for ethanol producers, in essence shifting the cost to the general Treasury.

While the tax change is expected to win support in the conference on the omnibus energy bill (HR 6), lawmakers concerned that the conference could be bogged down decided to attach it to the short-term highway bill. House Ways and Means Committee Chairman Bill Thomas (R-California) does not like the ethanol provision because of the added cost to the Treasury and the White House is also opposed, though it has not issued a veto threat over the matter.

The Senate Environment and Public Works Committee is scheduled to mark-up the extension legislation on Tuesday, September 23.

In the House, Transportation and Infrastructure (T&I) Committee Chairman Don Young (R-Alaska) introduced two pieces of legislation that would extend TEA-21's surface transportation programs beyond the act's September 30, 2003 expiration date. The only difference between the bills is the length of the extension: H.R. 3088, the Surface Transportation Extension Act (STEA), would extend TEA-21 for an additional 6 months; H.R. 3087 would extend the program authority by only 5 months.

Both bills provide continued funding for federal highway, transit, and highway safety programs using current program structures. Funding levels are tied to the fiscal year 2004 budget resolution.

A major difference between the House and Senate short-term highway extension bills is expected to be a provision (sec. 2(e) (3) of the House bills) that would make the February 29 (or March 31) expiration of the extension bill a little less meaningful. Sec. 2(e)(3) section of the House bill (proposed TEA-21 extension), which House staff refer to as the “dimmer switch” provision, would allow State DOTs to be reimbursed for previously committed federal funds through June 1, 2004 (5-month extension) or July 1, 2004 (6-month extension). This will allow States to continue current construction programs without fearing a hard cut-off of funds as the 2004 construction season begins. The Senate version does not include a similar provision.

Supporters of the AmeriCorps program have conceded that they have been unsuccessful in their attempts to obtain an emergency $100 million appropriations. House and Senate negotiators have left funding for AmeriCorps out of a package of $937 million in supplemental funds.

Supporters had been seeking the funding in order to pay for the 20,000 of the 50,000 unfunded volunteer slots. The 20,000 slots were unfunded due to financial management problems at the Corporation for National and Community Service. AmeriCorps supporters will encourage Congress to approve President Bush’s request for $433 million for AmeriCorps in fiscal year 2004 which would expand the program to 75,000 volunteers.

We have reported in recent weeks that prospects for TANF reauthorization this year are dim. House leaders confirmed this on September 16 when they said they do not expect the Senate to act on welfare reform reauthorization before the end of the year. The 1996 landmark bill, which created the Temporary Aid for Needy Families (TANF) program expired last year, and Congress authorized an extension after lawmakers were unable to pass a new welfare reform bill before the expiration date. In February, the House passed a welfare reform reauthorization bill (H.R. 4) sponsored by Rep. Deborah Pryce (R-Ohio) and the bill was referred to the Senate Committee on Finance. Last week, the F inance C ommittee reported out a substitute to H.R. 4 by a vote of 9-8 and that bill is now awaiting consideration by the full Senate.

It's unlikely that the full Senate will act on the bill before September 30th, when the current extension bill expires. Reports indicate that there is some discontent among Senate moderates regarding the level of funding for childcare in the bill. Committee Chairman Charles Grassley (R-Iowa) reportedly promised Sen. Olympia Snowe (R-Maine) to address childcare funding when the bill reaches the floor. With the lengthy debate that is likely to ensue on the Senate floor, it's unlikely the Senate will act expediently on welfare reform. In addition to working on TANF reauthorization, the Senate also has to complete work on appropriations, deal with the Iraq request and to address Medicare overhaul.

Besides childcare funding, some lawmakers are concerned about a provision in the bill that would increase work requirements for most welfare recipients from 30 hours per week to as much as 40 hours per week.

On September 17, the Senate Finance Committee will markup a bill extending authority for expenditures made out of the highway trust fund. The bill will extend authority for five months, allowing transportation authorizers more time to craft a successor to TEA-21, which is set to expire on September 30. In conjunction with the extension bill, the committee will also consider the Volumetric Ethanol Excise Tax Credit Act (VEETC) of 2003 (S. 1548), originally proposed by Committee Chairman Charles Grassley (R-Iowa).

VEETC would make changes to tax collection laws, allowing the highway trust to derive additional revenues. Currently, conventional gasoline is taxed at 18.4 cents per gallon, with all proceeds being deposited in the highway trust fund. On the contrary, ethanol, an oxygenate produced from corn, which is used to reduce fuel emissions, is taxed at a rate of 13.2 cents per gallon, with 2.5 cents being siphoned off by the transportation general fund. The Grassley bill would transfer the 2.5 cents from the general fund to the highway trust fund, raising an estimated $600 million in additional revenue for the trust fund.

Additionally, VEETC would attempt to close tax collection loopholes that some gasoline purchasers have used to avoid paying the full tax rate. Some gas companies, who blend their gasoline with ethanol, pay a reduced tax rate of 13.2 cents per gallon. Gas companies are not required to blend their gasoline with ethanol at the point of purchase if they promise to later blend it. However, many gas companies never blend it, shortchanging the government in the process because of the reduced tax rate. Senate Finance Committee aides believe there exist strong evidence which suggests that companies are engaging in this deceitful practice and reneging on their promise to blend the purchased gasoline with ethanol. Grassley’s bill would do away with the “honor system” and force would-be buyers of most alcohol-blended fuels to pay the full 18.4 cent per gallon tax up front, which would allow the government to collect the money immediately. If a blender can prove they added a gallon of ethanol to the gasoline, they would have two options: take an excise tax credit or file for a tax refund. A tax refund would only be granted if the refiner does not owe the government any money. With the elimination of a 5.2 cent tax incentive, the highway trust fund is expected to earn an additional $1.2 billion in revenue annually. It is believed that the general fund will pay for the tax credit.

There exists much support for VEETC, with 36 associations representing transportation, engineering, business, corn growers, and farmers all supporting the bill. In the Senate, the bill has already received strong bi-partisan support. The Senate majority leader, minority leader, and chairmen and ranking members of the Senate Environment and Public Works and Energy and Natural Resources committees are all cosponsoring the bill. However, ethanol production supporters are unsure of whether House Ways and Means Chairman Bill Thomas (R-California) will go along with VEETC if the proposal reaches the House. Thomas would likely be uneasy about allowing ethanol, which is mainly produced in the Midwest, to be the lone market oxygenate, since the chairman is from a coastal state. If Thomas stands in the way of revising ethanol tax collection laws, the issue will likely be revisited when a six-year surface transportation reauthorization bill is considered next year.

On September 18, the Senate Environment and Public Works Committee will follow the lead of the finance committee and mark up their portion of the TEA-21 extension bill.

The current appropriations bill to finance the departments of Transportation and Treasury (HR 2989, S 1589) has run into a series of problems stemming from the new Homeland Security Department appropriations bill. In order to keep the number of appropriations measures at the status quo, the Transportation and Treasury-Postal Service appropriations were merged into one, causing numerous headaches for lawmakers.

The administration has threatened to veto the legislation if two provisions survive a House/Senate conference, which itself can't begin until the Senate passes the measure. The Senate's work must be completed before the end of the fiscal year, October 1.

The first provision invoking a veto threat involves the President's push to privatize thousands of federal jobs. The House amended the bill by a vote of 227-188 to prevent the Office of Management and Budget (OMB) from implementing a measure to outsource up to 15% of all federal jobs by the end of September. In previous years, OMB wasn't tied to transportation money, so a veto threat wouldn't implicate funds for highway, transit and railroad programs. This year, though, the threatened veto had direct consequences, as Ernest Istook, (R-Oklahoma), the chairman of the Appropriations subcommittee warned colleagues, "If this bill were to be vetoed . . . bulldozers across the country would stop." The Senate version of the bill fails to contain any language regarding outsourcing.

The other provision which attracted a veto threat from the President was an amendment proposed by Jeff Flake (R-Arizona) and Jim McGovern (D-Massachusetts) which would lift the current ban on travel to Cuba. The amendment passed 227-188 with 53 Republicans voting for it and 22 Democrats voting in the negative. The House leadership and the administration remained committed to preventing this measure from becoming law, although Senate support is unknown. In the past, lifting the travel ban has made it from the House and Senate into the conference only to be dropped once there.

Many transportation supporters remained wary of the bill despite the lopsided 381-39 vote in the House on September 9. It remains to be seen whether changes will creep into the Senate version, when it emerges from conference, or if it passes as it stands now, whether the administration will follow through on its veto promise.