The Senate Finance committee released a set of proposals for tax cuts designed to aid the victims of Hurricane Katrina, and encourage other Americans to donate to the relief effort. Among the items included that will directly benefit hurricane survivors include cancelation of early withdrawl penalties from retirement plans, extension of the Work Opportunity Tax Credit and other provisions that would encourage hiring those displaced by the hurricane around the country and aid in the retention of employees within the disaster zone, and a relaxation of restrictions of financing to first-time homebuyers in the areas impacted for three years. In addition, the package would provide incentives for all Americans to contribute to the relief effort by increasing tax right-offs for businesses for food and books, granting an additional tax credit for those who open their homes to shelter hurricane victims, and by allowing tax-free cash donations from IRA accounts. The proposals by the Finance committee would also increase taxpayer assistance efforts by the IRS to meet the needs of those seeking to receive the benefits of these proposals.

The Congressional Budget Office released their Monthly Budget Review this week, in which they noted that for the first eleven months of this fiscal year (which ends Sept. 30), the government ran a deficit of $352 billion. For various reasons, including that fact that corporate receipts were up due to specifics in certain expiring tax laws, this deficit is $85 billion less than the deficit run at this time last year. These facts have allowed President Bush to claim that he is on track to cutting the deficit in half by 2009 (one of his many campaign promises). The reality is, the Hurricane Katrina disaster will affect deficit levels for 2006. The CBO report states that deficits will not be greatly affected for FY 2005 because we only have one month to go; however they do mention "substantially greater costs will be incurred in fiscal year 2006." It looks like we can expect deficits to be on the rise again in the year to come. The administration is not to blame for the fact that the disaster will have a negative effect on the FY 2006 deficit. However, the administration is to blame for our deficits being so high in the first place. In 2004 the budget deficit was $412 billion, and most of that was due to Bush's massive tax cuts. Now we are being forced to engage in deficit-financed spending because of the recent disaster, and the administration can claim that they had no control over what is sure to be a very high deficit figure next year. If not for their prior policies, however, our deficits would have never been so high in the first place.

Democrats have been pushing for leaders of the House and Senate budget committees to suspend or substantively change prior plans for the budget reconciliation process. While it is not clear whether this will happen, it is certain that the budget reconciliation deadline will at least be delayed, although for an indeterminate amount of time. Under the budget resolution passed in April, the reconciliation process would have resulted in:

Taking $35 billion from expected mandatory spending over five years;

Enacting $70 billion in tax cuts over five years; and

Raising the federal government's debt ceiling by $781 billion.

The deadlines which had been set for the actions mentioned above were September 16, September 23, and September 30, respectively. Now it appears those deadlines will be extended for at least a few weeks, although the House and Senate Budget Committee Chairman Jim Nussle (R-IA) and Judd Gregg (R-NH) seem eager to not postpone reconciliation indefinitely. Nussle stated, "We should not be distracted by this or anything else to continue our efforts to reform government. That's what reconciliation is about, it's about reforming government." Gregg chimed in with similar sentiments, calling the idea of indefinite suspension of reconciliation "blatant politics," and noting, "The view is we're still going to execute this reconciliation package in a timely manner." Democrats in the Senate and House are continuing to argue that the ultimate goals of reconciliation process would conflict with the needs of the victims of Hurricane Katrina, and should thus be suspended or drastically reconsidered.

Congressional tax committees have set to work and are looking into how tax policy can be used to help victims of the recent disaster, both immediately and in the long run. Chairman of the Senate Finance Committee Charles Grassley (R-IA) told reporters in a morning news conference that his committee would be looking into relief efforts associated with past natural disasters in order to determine which policies have been effective. Then, they will look into applying similar policies to help those affected by Katrina. Meanwhile, in the House the Chairman of the Ways and Means Committee, Bill Thomas (R-CA), is apparently exploring a three-phase approach addressing the initial humanitarian concerns, followed by infrastructure concerns, and finally long-term reconstruction. The first measure, which could move as early as September 8, deals with getting money to individuals through TANF (Temporary Assistance for Needy Families). The measure would remove a lot of red tape and provide immediate assistance for a number of families. Also, it is pretty clear that any sort of work on Social Security legislation is off the table now that Congressional leaders have their hands full dealing with the disaster. Sen. Olympia Snowe (R-ME) told BNA News Services that "Major issues are overtaking a number of issues like Social Security. It's hard to foresee a legislative agenda addressing the long-term issues associated with Social Security this fall." Grassley made similar comments, telling reporters that his top priority this fall will be disaster-related measures, the Roberts nomination, budget reconciliation legislation and appropriation bills, and then Social Security.