Senate Agrees On Tax Cut Package Plan Includes $500 Credit For Each Child, Dramatic Drop In Capital Gains Taxes
Senate Republicans reached broad agreement Friday on a sweeping, $245 billion package of tax cuts for families and businesses, increasing the likelihood that both houses of Congress will find common ground on tax relief this year.
The centerpiece of the Senate GOP package is a permanent, $500-per-child tax credit for families, which was settled on only after days of behind-the-scenes wrangling, as Republicans sought to squeeze as many tax cuts as possible into a package that also had to fit in with broader, deficit-cutting targets.
The tax credit for families with children would be phased out for couples earning more than $110,000, for example, making it somewhat more restrictive than a similar measure that passed the House earlier this year.
Clearly stung by White House charges that their proposals favor the well-to-do, Republicans Friday took pains to emphasize that the tax plan is “family friendly” and its benefits were weighted toward the middle class. In addition to the tax credit for families with children, Republican leaders proposed a series of tax breaks affecting Individual Retirement Accounts, capital gains, inheritance and student loans.
“We said we were going to give tax relief to working, middle class families, and this really does,” said Sen. Alfonse M. D’Amato, R-N.Y.
The GOP deal was complicated by political rivalries and crosscurrents within the party, such as the desire to provide major tax breaks for families but also to adhere to the path to a balanced budget. As one result, final decisions on certain business tax breaks remained at issue.
Nonetheless, Republicans who control the votes on the key Finance Committee agreed on key provisions Friday:
Effective next year, families would be granted a new, $500 tax credit for each child. The benefit would start to phase out for single parents with income of $75,000 and for couples at $110,000. By contrast, the House measure does not begin to phase out until the $200,000 income level, a key difference that will be battled over in the coming days.
Capital gains taxes would drop for individuals, with the top individual rate of 28 percent falling to an effective top rate of 19.8 percent. The new rates for individuals would apply only to investments held for more than one year. The top rate for businesses would fall from 35 percent to 28 percent. The new rules would be applied to gains realized after Oct. 13, 1995.
The exemption for estate taxes, currently set at $600,000, would go up to $750,000 generally; exemptions for estates that are family-owned farms or other businesses would be pushed up to $1.5 million with a partial exemption lingering at higher levels.
$20 billion in “corporate loopholes” would be closed, although Republicans Friday did not agree on which ones.
Income levels for fully deductible Individual Retirement Accounts would be phased in to reach about $85,000 for single taxpayers and $100,000 for couples, from the $35,000 and $50,000 levels that commonly apply under current law. The proposal would also create a new IRA in which income would be tax-free under certain conditions, but the contributions would not be deductible.
A new tax credit, not to exceed $500, would be allowed for students, totaling 20 percent of the interest paid on student loans.
The tax agreement “keeps our word to the American people,” said Senate Majority Leader Bob Dole, R-Kan., adding that “I think we’ve done a good job.”
Dole said the Republican tax bill, which may be considered in the Finance Committee next week, will be brought to the full Senate by Oct. 24.
The Republican deal dashed the hopes of Democrats and some Republican moderates that the final Senate proposal might be much more modest than the House tax package. Nonetheless, a group of moderate House Democrats Friday sought to highlight an alternative approach to balancing the budget from the general Republican direction. The moderates unveiled a plan that would seek to cut less from Medicare and Medicaid than Republicans have proposed, while also imposing welfare reform.
So far this year, however, Democratic proposals on the big issues of taxation and spending have gotten virtually nowhere. Friday’s Senate tax deal was the product of closed-door negotiations to which Democrats were neither invited nor informed.
“Every American should be suspicious about the tax deals Republicans are cutting behind closed doors,” said Senate Democratic Minority Leader Tom Daschle of South Dakota, adding that “It’s more than coincidence that this deal was cut on Friday the 13th. It’s voodoo economics all over again.”