Tax panel's new GOP chief seeks $190 billion in cuts

November 11, 1994|By David Hess | David Hess,Knight-Ridder News Service

WASHINGTON -- A $190 billion bonanza of tax cuts for businesses, families with children, affluent taxpayers and the elderly will be proposed early next year by the incoming Republican chairman of the House Ways and Means Committee.

Rep. Bill Archer, a conservative from Houston, said yesterday that he will move swiftly during the first 100 days of the Republican-controlled 104th Congress to slash taxes in the hope of promoting increased savings to spur economic growth.

The biggest winners from the tax changes would be America's wealthiest taxpayers.

About 73 percent of a proposed capital gains tax cut would go to families earning more than $100,000 a year; 95 percent of the benefits from an expanded Individual Retirement Account (IRA) provision would go to the top 20 percent of earners.

Mr. Archer said he would replace the lost revenue with unspecified "innumerable spending cuts" in non-defense domestic programs.

After that, Mr. Archer said he plans to pursue a more radical reform of the federal tax system by replacing the income tax with a broad-based consumption tax.

Critics have expressed grave doubts about the real costs of the tax strategy.

Congressional tax analysts say the size of the tax gap would soar well beyond the $190 billion after the first five years. For example, the capital gains cut could cost $160 billion and an the IRA provision another $50 billion over the second five-year period.

Mr. Archer insisted that the overwhelming Republican victory Tuesday handed his party the mandate it needs to remake the tax system. "We cannot just bask in the euphoria of winning," he said. "We've got to go to work now, and we've got to deliver."

Stressing that he wanted to create a "savings-friendly" tax structure, Mr. Archer -- who has served on the tax-writing committee for 21 years -- said he also hoped to simplify the federal tax code and "remove the IRS to the greatest extent from our lives."

In the initial round of tax-cutting, Mr. Archer would:

* Provide a tax credit of $500 per child for families earning up to $250,000 a year, a move that would cost the federal government $107 billion in lost tax revenue over the next five years.

* Phase out the so-called "marriage penalty" by charging the same, lower income tax liability to married couples as to unmarried people living together in the same household. The five-year tax loss would be $16 billion.

* Repeal the tax increase imposed last year on Social Security benefits of well-to-do pensioners, and raise the tax-free earnings TC limit on pensioners' outside income. The five-year tax loss would be $23 billion.

* Reduce the effective rate of the capital gains tax by 70 percent. That would be achieved by excluding 50 percent of gains from taxation while adjusting or indexing the basic value of stocks, bonds and other assets for inflation. The revenue loss would be $56 billion in the first five years and sharply rise to $160 billion over the next five.

* Reinstate IRAs for persons earning more than $50,000 a year. It would increase federal revenues by $5 billion over the first five years but lose $50 billion over the next five.

* Raise the estate tax exemption to $750,000 from $600,000. That would cost the government $6.5 billion over five years.

* Allow businesses more generous write-offs for new equipment, permitting them in effect to deduct more than the original cost over the life of the asset. It would increase federal revenue by almost $20 billion over the first five years, then lose about $58 billion over the next five.

* Give independent oil and gas producers additional tax breaks to encourage more exploration, research and development. The tax loss was not determined, but is probably in the range of $500 million over five years.

* Encourage workers to set up tax-exempt "Medisave" accounts to pay for health insurance and medical care while adding to the pool of domestic savings. No firm revenue-loss estimate was available.

Many of Mr. Archer proposals stemmed from the GOP's "Contract with America," which was the equivalent of a national party platform during the fall congressional elections.

President Clinton has indicated that he might support some of the tax changes, such as a tax credit for children. But he has shied away from most of the other proposals, such as the big capital gains tax cut, because of the heavy impact the revenue losses would have on the budget deficit.

Under budget law, any tax cuts have to be balanced by spending cuts or compensating revenues.

NEW TAX PROPOSALS

Here are some of the major tax initiatives proposed by Texas Republican Bill Archer, the incoming chairman of the tax-writing House Ways and Means Committee. Estimated five-year tax losses or gains are in parentheses.

* A capital gains tax cut, with inflation adjustments in asset values. (-$56 billion)

* A $500-per-child income tax credit. (-$107 billion)

* A phase-out of the "marriage penalty" in the federal income tax. (-$16 billion)

* An increase in the tax-exempt earnings limit for Social Security recipients and a repeal of the income tax increase for wealthier Social Security pensioners. (-$23 billion)

* Reinstatement of IRAs for higher-income taxpayers. (+$5 billion)

* Tax-free "Medisave" health care accounts. (Unknown)

* Generous write-offs for business equipment. (+$20 billion)

* Increased tax breaks for oil and gas producers. (-$500 million)

* Increase the estate tax exemption to $750,000 from $600,000. (-$6.5 billion)

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