After postponing the markup three times and significantly modifying the contents of the bill, the Senate Finance Committee finally approved its version of the tax cut reconciliation bill Tuesday evening, 14-6. The bill would increase the deficit by a net of $60.2 billion over the next five years. The committee was originally scheduled to markup the bill last Thursday morning, but ran into opposition from Sen. Olympia Snowe (R-ME) to provisions to extend cuts to capital gains and dividend taxes, the heart of the Bush tax cut plan. As recently as this morning, Chairman Charles Grassley (R-IA) was unable to compile a package that would win the support of all Republicans on the committee but eventually convinced conservatives on the panel that removing the tax cuts for wealthy Americans would not put the issue to rest. During the markup last Thursday morning, Grassley attempted to salvage his proposed tax reconciliation bill by removing provisions to extend the capital gains and dividend cuts to appease Snowe. Winning her support was essential to moving the bill out of committee, as the Democrats were prepared to vote against the package. With Snowe on their side, the vote would be even, resulting in the bill not being reported out. But removing those cuts caused a sharp backlash from the other conservative Republicans on the committee, particularly Sens. Trent Lott (R-MS) and Jon Kyl (R-AZ). The committee recessed to a members-only meeting in an attempt to find a compromise acceptable to all of the panel's Republican members. Grassley and others were unable to find an acceptable compromise on Thursday, despite an hour and a half of discussion, and postponed the markup until Tuesday morning. After meeting with Majority Leader and committee member Bill Frist (R-TN) to find a compromise proposal, Grassley released a revised bill that removed the capital gains and dividend cuts completely, made numerous smaller modifications to the bill, and added a number of charitable giving incentives favored by committee member Sen. Rick Santorum (R-PA). The standstill in the markup was finally ended when Grassley convinced conservative Republicans on the Finance Committee, particularly Sens. Mike Crapo (R-ID), Kyl and Lott that removing the capital gains and dividend tax cuts from the bill to ensure its passage out of committee would not doom the prospects of including those very same cuts in the final version of the bill. In fact, it seems almost assured that those cuts will return, since they are already in the House version, and many Senate conservatives demanding they be included. The opposition of committee Democrats and Snowe to the capital gains and dividend tax cuts is certainly understandable. First, the cuts do not even expire for another two full year at the end of 2008. Second, at a time when Congress is attempting to cut programs supporting low-income Americans, Snowe and others felt passing large and unnecessary tax giveaways to the super-rich to be questionable at best. The capital gains and dividend tax cuts would cost $12 billion to extend for one year, 80 percent of which would go to Americans with annual incomes over $200,000. In addition to tax cuts and extension of certain expiring credits, the approved bill includes both charitable incentives and reforms. The incentives include five provisions previously included in S. 1780, the Charity Aid, Recovery and Empowerment Act (CARE), sponsored by Sen. Rick Santorum (R-PA). Santorum's negotiations with Grassley largely determined the CARE charitable incentives ultimately included in the bill:

• A deduction for a portion of charitable contributions made by individuals who do not itemize their tax returns, with a floor of $250 ($500 for joint filers) and no cap.
• Tax-free distributions from individual retirement arrangements (IRAs) for charitable contributions. This would allow individuals to exclude from their gross income other taxable IRA distributions for traditional or Roth IRA distributions made to a charity during the period between December 2005 and December 2007.
• Modification of charitable deduction for food inventories from the present law that enhanced deduction for eligible contributions of food inventory. (Congress has already addressed the size of deductions individuals can take on donated cars, which took effect this year.)
• Modifications to encourage contributions of capital gains real property made for conservation purposes.
• Increased incentive for S corporations to make charitable contributions.

The above incentives expire on Jan. 1, 2008. Coupled with the expansion of charitable incentives are reforms to offset the costs. The reforms are for record keeping and substantiation of charitable donations for cash and non-cash items. Reforms include:

• Donor advised funds: imposing a 5 percent payout requirement, establishing requirements for payouts every three years and disallowing distributions to donors and advisors.
• Supporting organizations: imposing a payout of the greater of 85 percent of its income from the prior taxable year or 5 percent of the aggregate fair market value of all the assets of the organizations other than assets directly used for program support.
• Donative value of clothing and household items: imposes the creation of a standard for estimating the donative worth of clothing and household goods through a guide written and published by the Internal Revenue Service (in consultation with donee organizations).

There are a number of other anti-abuse provisions, including a provision that modifies the deduction for façade easements. The Joint Committee on Taxation has published a more detailed description of the charitable reforms and incentives. The narrative of the back-room dealings and private meetings of the Senate Finance committee markup is eerily similar to the actions undertaken by the House of Representatives last week as GOP leaders tried to pass an unpopular spending cut bill. Grassley was in a similar predicament to that of House GOP leaders regarding language allowing drilling in the Arctic National Wildlife Refuge (ANWR) in the House spending cut bill. Grassley, however, has been successful in convincing conservatives on his committee that the capital gains and dividend cuts will be revisited during a House-Senate conference before a final vote on the bill. It still remains to be seen if House leaders will have similar luck in convincing conservatives that the ANWR provision will reappear in the final conference report of the spending bill. Whether successful or not, however, GOP leaders in both the House and Senate continue to play the game of bait and switch -- seeking to wrangle any votes they can behind closed doors, in order to pass irresponsible fiscal policies far removed from the will of the American people. In the end, regardless how the Congressional battle shapes up, it is the American people who will ultimately lose.