March 10, 1995 in Nation/World

House Republicans Unveil Tax-Cut Plan But Opposition Mounts In Deficit-Conscious Senate

From Wire Reports
 

The House’s chief tax writer, defying growing Senate Republican opposition, Thursday unveiled nearly $200 billion in tax cuts that closely track those in the GOP’s “Contract with America.”

Republican Rep. Bill Archer of Texas slightly trimmed the value of the party’s previously proposed $500-per-child tax credit and added a substantial new tax break for business, but otherwise showed lockstep loyalty to House Speaker Newt Gingrich, who is pushing the contract as the party’s ticket to power.

The proposal by Archer, chairman of the tax-writing House Ways and Means Committee, sparks what is likely to be one of Congress’ most intense battles this year. It was given an immediate cold shoulder by key Senate Republicans and provoked howls of protest from President Clinton and congressional Democrats.

“My enthusiasm for tax cuts is diminished by our overwhelming need to reduce the deficit,” said Republican Sen. John H. Chafee of Rhode Island, a member of the Senate Finance Committee. “I’m skeptical of our ability to pay for any tax cut.”

Archer promised that the House would not approve tax cuts unless it paid for them with off-setting spending cuts. But so far lawmakers have only come up with about $60 billion or $70 billion in cuts, virtually all of them in welfare and food stamps, a fact that did not escape Democratic attention Thursday.

“How can they justify providing almost a quarter of a trillion dollars in tax benefits to the most privileged in our society, by cutting the most vulnerable in our society - kids and school lunches?” demanded White House Chief of Staff Leon Panetta. “The American people are not going to accept that; we’re not going to accept that,” Panetta declared at a White House briefing.

In response, Republicans released a table that shows people with incomes of $200,000 and over would see their tax burden reduced by 2.9 percent, while those in the $30,000-$40,000 range would get a 4.3 percent cut, and those making less that $10,000 would have their taxes reduced by 2.3 percent.

The Democrats shot back with a table that compared dollars - not percent. It showed those making $200,000 would get to keep $4,357 more, while those in the $30,000-$40,000 range would pocket about $35, and those earning less than $10,000 would keep $7 more.

Democrats also said the cost of the Republican package would balloon after five years, for a 10-year total of $700 billion.

Release of Archer’s proposal opens the newest chapter in one of the most contentious congressional sessions in years. Although GOP House members have talked bravely about pushing their tax- and spending-cut agenda, they repeatedly have delayed unveiling the details. Instead, they generally have advanced procedural reforms such as applying the nation’s safety and environmental laws to Congress and trying to approve the balanced budget amendment.

But with the government’s budget clock ticking - Washington needs a spending plan for the fiscal year that begins Oct. 1 - House leaders have little choice but to forge ahead with their tax cuts and the vastly more complicated task of making good on their promise to offer a plan for balancing the budget by 2002.

The size of the job is daunting; the Congressional Budget Office has estimated the GOP program will require cutting expected spending $1.4 trillion over seven years, or three times more than Congress ever before has mustered the will to cut.

The program is sure to expose rifts among Republicans. Besides Chafee, Senate Finance Chairman Bob Packwood of Oregon and party conservatives such as Sen. Alphonse D’Amato of New York have criticized the idea of tax cuts in recent days.

Even Archer opposes some of the cuts he proposed Thursday, according to congressional staff members. The Ways and Means Committee chairman included a proposed tax break for business property because it is part of the GOP’s “contract.” But according to these staffers, he has told House leaders he will seek to replace it with another business tax break, repeal of the so-called alternative minimum tax. Each would save business an estimated $17 billion over five years.

Finally, the tax and budget proposals give Democrats an opening to paint the GOP as heartless an opening Democratic leaders were quick to use Thursday and which Republian strategists increasingly are worried about.

“What you are looking at here is Robin Hood upside down,” said Rep. Jim McDermott, D-Wash.

“The first question I hope Americans will ask is: How are we going to pay for it?” said fellow Democratic Rep. Benjamin Cardin of Maryland. One third of the money is coming from cutbacks in welfare and childhood nutrition, but “where’s the rest?” Cardin asked.

While Archer’s five-year, $188.8 billion tax cut proposal is similar to the one included in the GOP’s election-season “contract,” it differs in a few key respects.

The Republicans’ $500 per child tax credit would be non-refundable - meaning that taxpayers who owe less than $500 could qualify for a refund for only the amount they owed.

GOP staffers insist this is not a change from the original version, but congressional tax experts acknowledged they had thought the original measure was refundable.

The difference of interpretation means that the poorest families, who generally don’t owe taxes, would not benefit from the bill, and it reduces the five-year price tag on the credit about $13 billion to $104 billion.

Archer’s proposed tax break on capital gains, the profits from investments, is slightly less generous than the original version, reducing its cost from $54 billion to $32 billion.

xxxx REVISED TAX CUT PLAN A plan by House Ways and Means Chairman Bill Archer would alter tax reductions promised by Republicans’ “Contract With America.”

Both plans: A $500 tax credit for children less than age 18 in families earning less than $200,000. Archer’s plan: The credit would be non-refundable, so taxpayers who owe less than $500 could use only as much as it would take to erase tax liability. They would not earn tax refunds. Archer’s plan: Lower taxes for many companies that must pay the alternative minimum tax, which is aimed at businesses with so many deductions or credits that they could otherwise escape paying income taxes.

Both plans: Allow more generous depreciation for companies with large amounts of costly equipment, a provision called “neutral cost recovery.” Allow tax-free withdrawals from IRAs for home buying, higher education and health care costs. Contributions to the accounts would be taxed. Reduce the capital gains tax rate paid on profits of property sales; eliminate any taxes paid on property values that increase through inflation. Repeal the tax increase on the best-off Social Secutiry recipients. Increase deductions for small businesses and people with home offices and boost the size of estates that are exempt from taxes. - Associated Press

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