Arrow-right Camera
The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Families, Investors Come Out Ahead In Pact’s Tax Cuts

Rob Wells Associated Press

Early winners in the balanced budget deal’s $85 billion tax-cut package seem to be investors and families with children, including those in college.

Precisely who wins and to what extent, however, won’t be known for some time.

Treasury Secretary Robert Rubin said most of the package “will be used to fund programs that will benefit middle-income people.”

But Republican congressional leaders and the White House offered few specifics on taxes in the ground-breaking budget deal announced Friday. Filling in much of the detail appears to have been left to Congress’ two tax-writing committees.

The broad outline is for $135 billion in tax cuts, offset by $50 billion in new revenues, for a net $85 billion in tax cuts over five years. The package calls for tax cuts in five areas: lower capital gains and estate taxes, education tax breaks, a per-child tax credit and expanded Individual Retirement Accounts.

Budget negotiators got a big boost at the last minute with word that the strong state of the economy would allow them to figure in an extra $200 billion over the five years. That shielded Social Security from immediate changes in its cost-of-living index, eased the president’s proposed cuts in Medicaid and added billions to domestic spending programs.

Although the deal had relatively strong bipartisan support, one principal, Sen. William V. Roth Jr., R-Del., the Finance Committee chairman, expressed reservations over its tax package. “I am, of course, disappointed that the tax cut is very limited,” said Roth, who wanted $193 billion in tax cuts.

A big wild card is the scope of capital gains taxes, the levy on profits from sale of stock and other investments, which both sides said will be defined by the tax-writing committees.

The Treasury Department says education tax cuts include a $10,000 tax deduction for college tuition and higher education and the so-called HOPE scholarship, $1,500 tax credit to pay for the first two years of college of students who maintain a B average.

Both sides also agree on a $500-per-child tax credit, which House Speaker Newt Gingrich, R-Ga., said in an interview could kick in as early as next year.

Another costly area is expanding IRAs, Individual Retirement Accounts. The Clinton and GOP proposals seek in differing degrees to let people tap their IRAs for certain uses, such as for medical emergencies and paying for college.

But expanding IRAs can be expensive. The congressional Joint Tax Committee estimated the Senate IRA proposal would cost $94.9 billion through the year 2007, but a Roth spokeswoman said previous estimates weren’t that high. The president’s budget proposal estimates its IRA plan will cost about $5.5 billion over the next five years, but the Joint Tax Committee contends it will cost $15.9 billion.

To pay for the tax cuts, the agreement would raise $30 billion by continuing the 10 percent tax on domestic air passenger travel as well as related airline taxes.