GOP strikes compromise on tax cuts

Democrats watch talks from the sidelines

Clinton veto expected

All brackets affected

Proposal includes 1-point rate cut, end to 'marriage penalty'

August 04, 1999|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON -- House and Senate Republican negotiators forged a compromise last night on a tax-cut bill that would reduce rates by 1 percentage point for Americans at every income level and phase out the "marriage penalty" that affects many two-earner couples.

Senate Majority Leader Trent Lott told reporters that the negotiators had decided to embrace the House's approach of cutting taxes for everyone regardless of income -- though not by an equal amount -- rather than a Senate plan to cut income taxes only for those near the bottom of the scale.

"Rates are going to be affected in all the brackets," Lott said, describing the proposal that would be phased in over the next decade.

Reducing the tax rate at each of the five income brackets by 1 percentage point would also have the effect, however, of granting a larger break for those at the lowest end. A cut to 14 percent from 15 percent, for example, is proportionally larger than a decrease to 27 percent from 28 percent.

Lower-income families would also benefit from the new provision for married couples, which would increase the standard deduction to double that of a single person and include more couples in the lowest tax bracket.

The GOP negotiators wrapped up the final details of the $792 billion proposal late last night, setting up a showdown with President Clinton, who has pledged to veto it.

Republican leaders, who control both houses of Congress, said they were determined to combine the rival House and Senate versions into a bill that can be approved by both chambers before Congress adjourns for its August recess at the end of this week. Democratic leaders who, like the president, oppose the Republican legislation, were not included in the negotiations last night.

Congressional leaders won't send the bill immediately to Clinton, who contends that it is too large, would require unacceptable cuts in programs such as defense and education and would do nothing to ensure the solvency of Social Security and Medicare.

Instead, Republicans plan to use their tax bill as a kind of campaign position paper during the recess. They hope to mobilize their constituents and compel Clinton to sign the bill. Failing that, Republicans at least want to demonstrate a clear difference between the parties on the issue of taxes that might serve Republican candidates well in next year's congressional elections.

"As we go through the August recess, as Americans see this tax bill and see it can really help their lives, we believe there will be further interest in coming our way from the White House and from Democrats," said House Majority leader Dick Armey.

To ensure the bill's appeal, negotiators were seeking an approach that would provide something for every taxpayer.

In addition to cutting income tax rates and easing the marriage penalty -- which forces many working couples to pay more in taxes than if they were single -- the compromise bill would eliminate the estate tax and reduce the tax rate on capital gains.

Sen. William V. Roth Jr., a Delaware Republican and chairman of the Senate Finance Committee, was expected to prevail in his quest to raise limits for contributions to individual retirement accounts.

Negotiators agreed early on nearly identical provisions that would allow the self-employed to deduct the entire cost of their health insurance premiums.

Congressional Democrats looked on from the sidelines with bemusement at the detailed work going into a proposal that Clinton insists has no chance of becoming law.

"It's like having two Christmas lists, using the best from each list, knowing that Santa's not coming," observed Rep. Charles B. Rangel of New York, the senior Democrat on the House Ways and Means Committee.

At issue between the two parties, is a sharp dispute over how best to use a $2.9 billion surplus that is projected to accumulate over the next 10 years.

Two-thirds of the money will come from the payroll tax that is earmarked for Social Security. Clinton and Republicans have pledged to use the Social Security surplus to pay off the federal debt until it is needed to pay benefits when baby boomers start to retire.

Republicans contend that most of the remaining surplus should be returned to taxpayers, who they say would otherwise be overcharged. But Clinton and the Democrats argue that the Republican plan is too risky because the budget surplus might never materialize.

The surplus predictions assume that the economy will continue to grow at a robust rate and that Congress will be able to make deeper cuts in federal spending than it has been able to make so far.

Democratic leaders warn that the president won't sign a tax-cut bill larger than about $300 billion.

But Armey said yesterday that Republicans would never agree to accept a tax cut that small.

"We'll just wait and pass another bill next year," Armey said. "We believe that the flow of public opinion will flow in our direction. The president is a man who will disappoint everybody in his life except his pollsters."

Pub Date: 08/04/99

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