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House Panel Cuts Fuel Exemption

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Washington--The House Ways and Means Committee was expected to vote late last week on a $12-billion tax package that includes a repeal of the federal motor-fuel tax exemption currently given to state and local governments, including school districts.

If that bill or a similar measure does not gain the President's signature by Nov. 20--the date automatic cuts mandated by the Gramm-Rudman-Hollings law go into effect--federal education funds could be cut by nearly $2 billion.

"It looks like we are between the devil and the deep blue sea," said Michael Edwards, legislative director of the National Education Association.

The repeal of the motor-fuel tax exemption, which could cost school districts thousands of dollars, was originally proposed by President Reagan in his budget for fiscal 1988 as a way to raise $600 million to offset the deficit.

It is only one of many revenue-generating measures in the bill drafted by House Ways and Means Democrats. Republicans on the Ways and Means Committee refused to participate in the drafting sessions on the budget reconciliation bill, arguing that the deficit should be offset through spending cuts rather than tax increases.

But a 23-13 majority of Democrats on the committee essentially assured its passage. Without some Republican support, however, passage on the House floor, where the Democrats' margin is slimmer, is more questionable.

A similar situation was brewing in the Senate, with Democrats on the Finance Committee drafting a tax package and Republicans refusing to participate.

With an 11-9 split between Democrats and Republicans on the committee, passage of the bill without Republican support is likely to be much more difficult than on the Ways and Means committee.

The package was scheduled to be considered by the full Senate Finance Committee last Friday.

Laura Wilcox, a spokesman for the committee, said that as of late last week, lawmakers had not included the repeal of the tax exemption in their tax package because they "recognize that most of the money would come from school districts."

Budget Cut Seen Harmful

Taking the 8.5 percent funding cut mandated by the Gramm-Rudman-Hollings law could be more detrimental to education than the repeal of the motor-fuel tax exemption, lobbyists said last week.

"That means slicing away nearly $1.8 billion in federal education funds," said Gregory Humphrey, legislative director for the American Federation of Teachers. "That's the entire increase we managed to get for the fiscal 1988 appropriations bill."

Mr. Humphrey added that among some Congressional leaders "there seems to be a gentlemens' agreement, if you can call it that, to just take the automatic cuts."

And President Reagan has vowed to veto any bill that includes tax increases, even though he originally proposed some of the measures.

Medicare Tax Proposed

In addition to the possibility of losing the fuel tax exemption or federal funding, some school districts also stand to be affected by one of President Reagan's revenue proposals that has found its way into the Senate's health-insurance bill.

Senator John Melcher, Democrat of Montana, plans to offer an amendment to the health bill when it comes up for a vote this week that would extend mandatory Medicare taxes to all state and local government employees in the 14 states where only new employees pay the tax.

Bill Ritz, spokesman for the Senate Special Committee on Aging, said the extension of the Medicare tax would raise $9.3 billion over the next five years to fund the prescription-drug program in Medicare.

In 1986, the Congress mandated that all new employees in those states that did not pay into the Medicare system, but instead paid into a state system, pay the tax.

Bruce Hunter, legislative director for the American Association of School Adminstrators, said that even if the amendment does not receive support, it is only a matter of time before school districts will have to pay the tax.

"I'm telling states to start putting the tax into the budget because sooner or later it is going to happen," he said. Mr. Hunter estimated that 1.5 percent of a district's budget would be allocated for the tax and and another 1.5 percent would be taken from individuals' pay checks.

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