Latest version of Republican tax bill gives first reductions in lowest bracket

Chairmen congratulate themselves as measure nears final approval

August 05, 1999|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON -- Congressional Republicans scrambled yesterday to ensure speedy approval in the House and Senate -- perhaps as soon as today -- of their $792 billion tax plan. At the same time, President Clinton reiterated his vow to veto it.

In the final version of the compromise crafted by Republican House and Senate negotiators, the timing of the income tax-rate cuts was adjusted to give the earliest breaks to those at the bottom of the income scale.

Taxpayers in the lowest tax bracket -- 15 percent -- would see a cut to 14.5 percent in 2001 and to 14 percent in 2003. Tax rates in the higher four brackets would remain as they are until 2005, when each would drop by 1 percentage point.

Leaders of the tax-writing committees congratulated themselves for serving what they said were the twin goals of granting broad tax relief from the expected federal budget surplus and favoring the poorest Americans.

"American families -- those who created the wealth in the first place, those who need their precious resources to meet basic needs at home -- are rightly entitled to the revenues they earned," said Sen. William V. Roth Jr., the Delaware Republican who is chairman of the Senate Finance Committee.

Rep. Bill Archer, the Texas Republican who is chairman of the House Ways and Means Committee, added: "I'm proud to be part of a Congress that is securing America's future by saving Social Security, strengthening Medicare, paying down the debt and providing meaningful tax relief."

But Clinton asserted that the Republican bill fell far short of those goals.

"If they conclude this plan and send it to me," Clinton told reporters in the Rose Garden, "I will have to veto it. I will refuse to sign any plan that signs away our commitment to America's future, Social Security, Medicare, paying down the debt."

So goes the rhetorical battle that is likely to continue for weeks, if not months, on the best use of the budget surplus.

A nearly $3 trillion surplus is expected over the next decade, including about $2 trillion in Social Security tax revenue. The Republicans propose to use most of the money left over for a sweeping package of tax cuts that would affect virtually every taxpayer.

They plan to pass their bill by the end of this week and then spend the summer recess trying to whip up enthusiasm among voters. Republican leaders won't send the measure to Clinton until the fall, because they don't want him to veto it while Congress is out of town.

Many provisions

In addition to the income-tax rate cuts, the bill would ease the "marriage penalty" that affects many two-income families, phase out the inheritance tax, reduce the tax rate on capital gains, grant deductions for health insurance premiums and boost tax breaks for retirement savings.

The capital-gains break on the sale of stocks and other assets would take effect retroactively from the beginning of the year. For most taxpayers, the top rate would drop from 20 percent to 18 percent; for those in the lowest income bracket, the rate would drop to 8 percent from the current 10 percent.

Most of the tax breaks would be phased in slowly over the next decade. The first-year cost of the measure is $5.2 billion, compared with $156.1 billion over five years and $792 billion over 10 years.

Critics say that despite the timing of the rate cuts that favors low-income taxpayers, the bulk of the tax breaks would ultimately go to affluent Americans.

The wealthiest 10 percent of taxpayers would receive 48 percent of the income tax cut, for an annual average of $1,322, when the bill is fully in effect, according to Citizens for Tax Justice, a liberal advocacy group. The 60 percent of taxpayers in the middle-income levels and below would receive 14 percent of the benefits, or an average tax cut of $65, the group said.

Democrats and some Republican moderates complain that the Republican tax-reduction package not only favors the rich but is far too large. They fear that the projected surplus might never materialize, that the tax cut might send the budget back into deficit and that other needs -- including Medicare and Social Security -- might not be met.

Sen. John B. Breaux of Louisiana, one of four Democrats who voted for the Senate version of the bill, said the House-Senate compromise was unacceptable to him and that Republican leaders may find it difficult to pass.

"Both parties continue to say, `It's my way or no way,' " Breaux said. "The real losers are the people in the middle, and that's where I believe most Americans are today."

Delmarva tax credit

Included among the scores of provisions in the combined bill was a Senate-passed proposal to grant a tax credit for plants that convert chicken manure into electrical power.

The credit, sponsored by Roth, along with Sens. Paul S. Sarbanes and Barbara A. Mikulski, both Maryland Democrats, is intended to encourage the development of a power plant on the Delmarva Peninsula.

Poultry farmers in Maryland, Delaware and Virginia are facing state restrictions on their use of chicken manure as fertilizer because scientists believe it is a major source of pollution in the Chesapeake Bay.

Fibrowatt, a British company that has developed the process for converting manure to electricity, is considering building a plant in Maryland or Delaware but says it needs a government subsidy to start.

Archer, the Ways and Means chairman, opposed granting that tax credit because, he says, such so-called temporary credits never go away. But he succeeded only in reducing Roth's plan for a five-year credit to four years.

"This is simply the right technology at the right place at the right time," said Sherry Tucker, a U.S. representative for Fibrowatt.

Pub Date: 8/05/99

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