Sensing voters' tax-cutting mood, four Democrats offer 'pro-family' plan

May 07, 1991|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun

WASHINGTON -- The experts say that, somehow, some way, Congress is going to cut someone's taxes this year.

So Democrats and Republicans, casting an eye to next year's campaign, have begun to squabble over a number of electorally motivated tax-chopping schemes.

Yesterday, four influential Democrats threw another plan onto the pile, proposing to lighten the tax burden on 35 million middle- and lower-income families while increasing the taxes paid by the richest 6 million families.

Their idea is to expand the earned-income tax credit, which benefits lower-income parents, and replace the personal exemption for each child under 18 with an outright tax credit -- just the kind of "pro-family" tax policy Democrats hope can be used to undercut Republican claims to "traditional values."

But it would pay for those tax breaks by slapping an 11 percent surcharge on those whose adjusted gross incomes exceed $250,000, thus placing the package squarely in the middle of a long-running, partisan feud about Republican charges that Democrats want to raise taxes and Democratic charges that Republicans don't want to make taxes more fair.

"The best way you can accelerate this economy is to put dollars back into the pockets of working people," said Sen. Al Gore, D-Tenn, who introduced the plan with Representatives Thomas J. Downey of New York, George Miller of California, and David R. Obey of Wisconsin. "This package does that . . . . I also predict for you that it will pass."

Notwithstanding Senator Gore's optimism, the plan will face stiff competition from within the Democratic ranks and meet with vociferous opposition from Republicans.

Senate Finance Committee Chairman Lloyd Bentsen, D-Texas, for example, has signed most of the Senate onto a bill to restore a once-universal tax break for individual retirement accounts.

The Bush administration, meanwhile, appears to have retreated from its earlier insistence on a cut in the capital gains tax rate and, instead, is touting its own, less ambitious IRA plan.

Senator Bentsen, however, has yet to suggest a way to compensate the U.S. Treasury for revenue lost to his IRA proposal.

At the same time, the plan has drawn fire from some Democrats, including Mr. Bentsen's counterpart in the House -- Ways and Means Chairman Dan Rostenkowski of Illinois -- on the grounds that it would benefit well-off taxpayers as much as it would those of modest means.

While expanding the value of the earned-income tax credit, the Democratic proposal introduced yesterday would replace the current $2,150 personal exemption with a tax credit of $800 for each child under 18.

By contrast, the current personal exemption provides greater tax relief for higher-income wage earners: It yields a $345 tax savings per child for lower-income parents in the 15 percent income tax bracket and a $713 savings for a parent in the topmost, 31 percent bracket.

At the same time, the proposal would increase the alternative minimum tax -- designed to ensure that all tax filers pay some tax regardless of how many legitimate deductions they claim -- to 29 percent from the current 24 percent, impose an 11 percent surcharge on the highest income earners, and would replace the present, three-tier income tax structure -- 15 percent, 28 percent, and 31 percent -- with a four-bracket setup of 15 percent, 28 percent, 32 percent, and 35 percent.

The last feature may prove the most controversial -- and, politically, the most unworkable -- part of the proposal.

Since the 1986 overhaul of the nation's tax code, tax rates have been changed only once, and with great difficulty -- during last year's massive budget negotiations.

The proposal to have four brackets would have the most impact on those whose adjusted gross income weighed in at the $130,000-to-$140,000 range.

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