House proposal links tax cuts, balanced budget

March 29, 1995|By Karen Hosler | Karen Hosler,Washington Bureau of The Sun

WASHINGTON -- Americans would not see any of the tax relief promised by House Republicans until after Congress acts to balance the federal budget, under a compromise being fashioned by Republican leaders.

The new proposal would delay the tax cuts promised in the House GOP "Contract with America" until after Congress adopts legislation to produce a balanced budget by 2002. Congress also would have to complete the first year of spending cuts before tax cuts would be granted.

If the compromise formula is adopted, Republicans would seek to have the legislation completed this fall -- in time for the first round of tax cuts to take effect next year.

The main elements are a $500-per-child tax credit for families with incomes of up to $200,000 a year and a 25 percent cut in the tax on capital gains. Other individual and business tax breaks are included.

The GOP leadership has not fully committed itself to any details. But House Speaker Newt Gingrich hinted yesterday that the concept could be the basis of a compromise to attract the support of conservative Democrats and moderate Republicans.

"As of right now, the tax bill is in some trouble," Mr. Gingrich said after a day of negotiations on the issue. "I think it's partly because we've been here too long. We were doing great for the first 40 or 50 days."

The $189 billion tax-cut package, scheduled for a House vote next week, will be the last of 10 major elements in the "contract" to be brought to the House floor.

That vote will complete the action Republicans promised to undertake in the first 100 days of Congress.

But the tax legislation is among the most controversial elements of the contract because its tax breaks for families and businesses would come at a time when Republicans, as well as many Democrats, are determined to eliminate the federal budget deficit.

Years of debt financing are forcing Washington to pay an increasing amount of tax dollars just for interest, reducing available funds.

Although the Republicans have pledged to pay for the tax cuts with an equal amount of spending reductions, there is no legal provision forcing them to do it.

Leaders of the House Republicans, who hold only a small majority of 230 to 204 over the Democrats, believe they must make some concessions to members of both parties or risk losing the tax package.

The compromise is patterned on a proposal offered yesterday by a coalition of moderate Republicans and conservative Democrats.

"If Congress finally acts to balance the budget like we said we will, then the tax cuts are safe and go into effect," the bipartisan coalition, led by Rep. Michael N. Castle, a Delaware Republican, wrote in a letter to House members yesterday. "But, if we remain on the same old 'spending binge' -- or fall off the wagon -- then we lose the tax cuts."

Mr. Gingrich and other Republican leaders who discussed the centrist proposal at a meeting yesterday rejected a feature that would repeal the tax cuts if Congress fails to continue meeting its deficit targets after the tax cuts take effect.

Tony Blankley, a spokesman for Mr. Gingrich, called that feature "impractical."

He said families and businesses affected by the tax breaks could not make important decisions without certainty of the tax consequences.

House GOP leaders are also resisting a separate proposal, supported by 102 Republican members, to lower the maximum income level at which families could receive the child tax credits from $200,000 a year to $95,000.

Conservative Republicans argue that such a move would violate the contract, which included the $200,000 figure.

Further, these Republicans are balking at appearing to bow to the wishes of President Clinton, who has proposed tax credits to families earning up to $75,000 a year.

"This is not, and must not become, an argument of class warfare," a group of Republican conservatives wrote in a letter to Gingrich this week.

It is unclear whether a concession on the budget deficit will be enough to pick up the votes of Republican moderates who are concerned about the appearance of granting a "middle-class tax cut" to families who earn up to $200,000 a year.

But resistance to lowering the income ceiling also comes because Republican leaders made commitments to family advocacy groups and other outside lobbyists during the election campaign that make them reluctant to shrink the tax-cut package, some House members said.

"We're looking at a lot of options, but that one is very low on our list," House Majority Leader Dick Armey of Texas said of the proposal to lower the income ceiling for child tax credits.

As a practical matter, the proposal to link the tax package to legislation leading to a balanced budget may have a more profound effect than simply reducing the size of the tax package.

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