Grassley's Tax Touch

On May 23, as the Senate raced toward passage of the comprehensive immigration bill before their Memorial Day break began, Sen. Charles Grassley moved the adoption of a new Title III to the measure. It passed easily without anybody mentioning that the amendment raises revenue, which was a violation of the U.S. Constitution’s requirement that all such measures originate in the House of Representatives.

That adds another new obstacle to the formidable task of reconciling seemingly irreconcilable Senate and House immigration bills. To surmount the constitutional problem, Senate Majority Leader Bill Frist, in effect, must pass a new bill — either under a procedure requiring unanimous consent or starting over with a bill subject to amendment. Considering the negative comments about the bill that senators heard from constituents last week, this may encourage new legislative attempts to control immigration.

There is no sign that Grassley intentionally sought to sabotage the immigration bill. Rather, what happened May 23 appears an extension of his normal procedure as Senate Finance Committee chairman to keep what he and his staff are doing shielded from colleagues, not to mention the public. While Grassley was amending the immigration bill, it also became known for the first time that he had quietly enacted — and President Bush had signed — a retroactive tax increase on Americans living abroad.

The Grassley touch on taxes may seem distinctive, but it fits the pattern of secrecy in the 21st-century Senate. When I told a senior Senate staffer last week that as a reporter I had no idea of what was happening to legislation, he replied that he had trouble keeping up himself even though this is his full-time occupation.

What occurred when Grassley introduced his Title III amendment on May 22 typifies the sorry state of the Senate. As Grassley’s explanation droned on in his Iowa twang, he was not easy to follow. He asserted he wanted illegal aliens to "pay all outstanding tax liabilities" and "allow the IRS to devise a system" to tax them. He did not explain exactly how this would work and certainly did not reveal that his proposal would raise revenue and, therefore, violate the Constitution.

The only subsequent debate was provided by Sen. John Cornyn, a first-term Republican and a hard-liner on immigration. He opposed the Grassley amendment on grounds it would allow continued employment of illegal aliens. But Cornyn, a former member of the Texas Supreme Court, did not mention Grassley’s constitutional abuse. The amendment passed, 59 to 39, on May 23.

Although Senate staffers realized the constitutional problem, they were betting nobody in the House would notice. But Rep. Bill Thomas, in his last year as chairman of the House Ways and Means Committee and jealous of its tax-writing prerogatives, certainly noticed and is intent on submitting a "blue slip" to return the bill to the Senate. The BNA Daily Report for Executives of May 30 revealed the problem, but senators I talked to last Friday were still unaware of what they had passed.

That is a common failing in today’s Senate. It is just as hard to find many senators who realize that the tax cut bill they had passed and that the president had signed raises taxes on Americans living abroad retroactive to Jan. 1. Actually, that provision was not contained in the versions of the tax reduction bill passed by either the Senate or the House, but was inserted in the dead of night to help "pay for" dividend and interest rate tax cuts.

Grassley was able to accomplish what Treasury bureaucrats have attempted to do for many years under both Democratic and Republican administrations and most recently were blocked by a Democrat, former Sen. John Breaux of Louisiana. It is not a modest tax increase but would raise the $3.5 billion in income taxes paid by expatriates in 2001 by $2.1 billion over the next 10 years.

At least three major tax bills progressing toward final passage recall the old saw that no man or woman is safe when Congress is in session. When legislation is passed by stealth, a violation of constitutional principle or a retroactive tax increase is possible at any time.