Tax Attacks House Gop Releases A Sweeping Tax Plan, But Democrats Say It’s Skewed Toward Helping The Rich

Launching their drive for the first major tax cut since 1981, House Republicans on Monday announced how they plan to reduce taxes by $85 billion over the next five years for a broad swath of Americans, including families with children, people who are selling their homes, corporations and the heirs of large family estates.

In a sign that the coming tax cut debate may reignite the rhetoric of class warfare between the parties, Democrats immediately respond that the GOP bill veers too sharply in the direction of the most affluent taxpayers.

The GOP proposal provides the first detailed look at the likely winners and losers under the tax package endorsed in broad outline by President Clinton and GOP leaders in this spring’s budget agreement.

Among the potential losers - the targets of some $47 billion in tax increases that would partially offset $132 billion in cuts - are ethanol producers and American Indian casinos.

“The tax relief package we will consider represents a solid first step toward a smaller government for bureaucrats in Washington and a larger paycheck for workers in the heartland,” said Ways and Means Committee Chairman Bill Archer, R-Texas, architect of the proposal that will be considered by his tax-writing committee later this week.

Although the bill generally tracks the broad outlines of the budget agreement, Democrats charged that the GOP filled in the details in ways that would systematically benefit the affluent.

Treasury Secretary Robert Rubin said he had “serious concerns” about Archer’s proposal because it “seems to have to have moved the tax benefit away from the less well off, and even away from middle-income people, toward higher-income people.”

In particular, administration officials and Rep. Charles Rangel, D-N.Y., the top Democrat on the Ways and Means Committee, criticized a feature of the proposed tax credit for families with children that would reduce benefits for the working poor.

They also opposed provisions of Archer’s education tax breaks that critics said would penalize people who go to lower-cost colleges, as many students with modest incomes do.

The budget agreement specified that tax cuts should include family tax credits, estate and capital gains tax cuts, expansion of individual retirement accounts and beefed-up education tax breaks.

It left it to Congress to fill in the details and squeeze all those pieces into a $85 billion net tax cut.

The single biggest element of Archer’s proposal is a $500-per-child tax credit for families, which would cost the government $71 billion over the next five years. The full credit, which applies to children under age 17, would be available to families with incomes up to $110,000 or single taxpayers with incomes up to $75,000.

However, Democrats complained that the credit’s value would be reduced for taxpayers who receive the earned income tax credit (a break for the working poor) or who claim the federal deduction for child-care expenses.

Archer’s bill calls for cuts in the tax on capital gains. Fulfilling a long-held Republican goal, Archer would cut the top rate from 28 percent to 20 percent.

A more controversial proposal would exempt inflation-driven increases in the value of assets from the capital gains tax beginning in 2001. The Clinton administration and other critics have opposed that so-called “indexing” proposal for fear that its costs would spiral out of control.

For education, Archer proposed a package of tax breaks worth some $31 billion. That is less than the $35 billion Clinton had demanded during budget talks with GOP leaders, and Archer’s plan differs in many respects from the president’s.

Like Clinton, Archer proposed tax credits for college expenses of up to $1,500 a year, but Archer wants to limit the credit to 50 percent of actual costs. Democratic critics said that would limit the credit’s benefit for students at community college and other low-cost institutions.

Archer also included an array of other education-related tax breaks, including penalty-free withdrawals from Individual Retirement Accounts for college expenses and new tax-free savings accounts for future college costs. He also wants to allow IRA withdrawals for the purchase of a first home.

The Ways and Means chairman also proposed reducing the estate tax, which now applies to inheritances in excess of $600,000, by raising that figure to $1 million by 2014.

Archer also included significant tax relief for corporations. He would cut corporate capital gains taxes gradually from 35 percent now to 30 percent by 2000.

MEMO: This sidebar appeared with the story: GOP TAX PLAN Highlights of the House Republican tax plan:

Tax cuts Families would get a $400 tax credit for each child under age 17 starting in 1998 and a $500 credit starting in 1999. Available to single parents with incomes up to $75,000 and to families with combined incomes up to $110,000. Families with college students would be eligible for a $1,500 tax credit for tuition and expenses. Available to single parents with incomes up to $50,000 a year and to families with combined incomes up to $100,000. These families also would be able to start college savings accounts similar to individual retirement accounts. For investors in stocks, homes and other assets, the capital-gains tax on their profits would be cut from 28 percent to 10 percent for those with incomes up to $41,200 a year. Those with higher incomes would pay 20 percent. Profits up to $500,000 on the sale of a home would be tax-free, up from $125,000 now.

Tax increases Air travelers would have to pay a 10 percent federal tax on airline tickets once again. Producers of ethanol - the gasoline additive made from corn - would lose some of their federal tax breaks. Indian casinos would be subjected to federal income taxes.