Democrats offer House tax plan Middle class largely aided

February 15, 1992|By Knight-Ridder News Service

WASHINGTON -- Laying down an election year challenge for President Bush, House Democrats united yesterday on a bill to squeeze the rich and cut taxes for just about everybody else.

In an effort to break into Mr. Bush's political support, Democrats also sweetened their capital gains tax cut and added provisions to make their package more attractive to business.

"I just hope after corporate America and the middle class read this bill, they'll be as enthusiastic about it as we are," said the House Ways and Means Committee chairman, Dan Rostenkowski, D-Ill., after a day of bargaining behind closed doors.

But the only enthusiasm Mr. Bush showed was for attacking the Democrats' plan.

Indeed, the gap between the Republican and Democratic plans is so great that the tax-cut debate may end in stalemate, with neither side able to enact its proposals. That would leave the economy to recover mainly on the strength of interest rate cuts -- a course many economists consider both likely and even preferable.

Mr. Bush, promoting his own economic plan at a housing development in Harford County, said yesterday that the Democrats' package would add to the deficit, cut into Medicare and lead to higher taxes for everyone.

"We do not need to raise taxes in order to get this economy moving again," Mr. Bush said. "We need to cut the taxes and cut spending."

He promised to veto any Democratic income tax increase that reaches his desk, even though his own budget contained some $23 billion in increased taxes and fees.

"I will not compromise," he said.

Mr. Rostenkowski said the Democrats' $91 billion, six-year plan would not add to the federal deficits because all the tax cuts are paid for with offsetting tax increases.

Congressional and private analysts say the benefits of Mr. Bush's plan -- he proposes a capital gains rate cut and tax breaks for businesses and the real estate industry -- would be concentrated on upper-income taxpayers -- with the middle class getting some help.

The Democratic plan would give about 80 percent of the public a tax cut at the expense of the wealthy. Wage earners would get a tax credit of up to $200, based on the amount of Social Security taxes paid. A new 35 percent top tax bracket and a 10 percent surtax on income over $1 million would cover the cost.

"The battle will be over who gets the break," said Rep. Marty Russo, D-Ill. "Will it be the wealthy who benefited under 12 years of [President Ronald] Reagan and Bush, or will it be the middle class?"

Mr. Bush proposed a middle-class tax cut of his own, a $500-per-child increase in the dependent exemption.

But by not asking Congress to consider it immediately, he left himself open to political accusations that he puts the wealthy first.

The Democrats were not totally indifferent to the power of wealth, however.

Their original capital gains tax cut would have benefited only those making less than $150,000,but the provision agreed upon yesterday would benefit all taxpayers, regardless of income. It would index capital gains to account for inflation.

Making a pitch to business, the Democrats also called for cutting the top corporate income tax rate from 34 percent to 33 percent and more generous tax breaks for real estate developers than Mr. Bush proposed.

Borrowing a page from Mr. Bush's budget, they also proposed creating 35 tax-advantaged "enterprise zones" to lure companies to inner-city neighborhoods and depressed rural areas.

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