House OKs GOP Plan for Tax Cuts of $792 Billion

WASHINGTON — House Republicans closed ranks Thursday and muscled through a bill to cut taxes by $792 billion over the next decade, the crown jewel of an agenda they hope will help the party maintain its fragile congressional majority in next year’s elections.

The proposal, however, faces a veto threat from President Clinton and a rough road in the Senate.

The House measure, approved on a virtual party-line vote of 223 to 208, calls for a broad range of tax relief--including a 10% cut in income tax rates, the elimination of taxes on inheritances, cuts in taxes on investment profits and a relaxation of the so-called marriage penalty.

The bill’s passage sets the stage for an extensive debate later this year with Clinton and the Senate on how to use the federal budget surplus that is changing the landscape of fiscal policy and politics.

Clinton wants a far smaller tax cut, pushing instead for using more of the surplus to reform Social Security and Medicare and pay for other social programs.

The Senate, meanwhile, is due to debate next week a bill that provides the same total amount of tax cuts as the House bill--$792 billion--but with the particulars geared more to benefit the middle class.

Passage of the House bill was a personal triumph for House Speaker J. Dennis Hastert (R-Ill.), who faced open rebellion from moderate Republicans who thought the proposed tax cut was too large. He put his personal prestige on the line in cajoling those Republicans, one-by-one over the last few days, and came out with a hard-won victory.

But the fact that he had to labor so hard on his party’s signature cause underscored just how difficult it is for Republicans to push their agenda through the House with their narrow five-seat majority.

In the final tally, more Democrats broke from party ranks than Republicans. Voting for the bill were 217 Republicans and six Democrats. Voting against it were 203 Democrats, four Republicans and the House’s one independent.

The strays included one Californian: Rep. Gary A. Condit of Ceres was among the handful of Democrats supporting the bill. All other members of the California delegation voted along party lines.

Hastert, in arguing for the measure during Thursday’s floor debate, said it offers “a simple choice,” spelling out a distinction sure to be echoed by GOP candidates as the 2000 campaign heats up.

“We can give some of the surplus back to the people, as we advocate, or we can return to the tax-and-spend policies of our friends on the Democratic side of the aisle,” Hastert said.

But Clinton, using language other Democrats will be sure to parrot in campaigns ahead, reiterated that the House version of the tax cut bill was unacceptable to him.

“The people who are for giving the surplus back to you in a tax cut say, ‘It’s your money, don’t let [Democrats] spend it on their friends,’ ” Clinton said. “Well, we’re for spending it on Medicare, Social Security and education and defense. That’s us. That’s all of us. That’s not our friends.”

Before Republicans fully engage the battle with Clinton, however, they will have to navigate significant differences between the House and Senate approaches to cutting taxes.

For example, the House bill’s provision to cut income tax rates by 10%--spread over 10 years--would apply to all taxpayers, including the wealthiest. The bill coming before the Senate next week would cut the tax rate for only the lowest bracket, from 15% to 14%, and expand it so more taxpayers pay the lowest rate. This is an approach geared to the middle class, which makes it more appealing to Senate Democrats.

And although the House bill would eventually eliminate all inheritance taxes, which under current law apply only to estates worth at least $650,000, the Senate proposal would only cut that tax rate.

Both bills have one crucial common element: only a handful of provisions would take effect in the next two years. Most would be postponed until 2001 or later, because that is when most of the projected $1 trillion in surplus will materialize for programs other than Social Security.

For example, the first installment of the across-the-board tax cut in the House bill--a 1% cut--doesn’t take effect until 2001; the next installment doesn’t come until 2004. And every installment after the initial 1% cut is conditional: They would be postponed in any year where there is no progress on reducing the national debt (the money and interest owed from years of deficit spending).

That “trigger” mechanism, linking the tax cut to debt reduction, was the key to Hastert’s successful effort to win support from GOP moderates. The four moderate Republicans who remained opposed to the bill were Reps. Greg Ganske of Iowa, Constance A. Morella of Maryland, Jack Quinn of New York and Michael N. Castle of Delaware.

The Democrats joining Condit in voting for the measure--all belonging to the party’s more conservative faction--were Virgil H. Goode Jr. of Virginia, Ralph M. Hall of Texas, Sanford D. Bishop Jr. of Georgia, Pat Danner of Missouri and Ken Lucas of Kentucky.

Before approving the bill, the House rejected two Democratic alternatives that would have cut taxes by $250 billion over 10 years--the size of the tax cut that Clinton has proposed.

Republicans presented their bill as a vehicle to provide relief for taxpayers at every stage of life--when they marry, when they save for college education, when they retire and when they die.

But Democrats said the bill was a laundry list designed to satisfy the GOP political base, including small business owners, who want to kill inheritance taxes; social conservatives, who want to end the marriage penalty, and business interests seeking cuts in capital gains taxes.

“It’s a Christmas tree,” said Rep. Charles B. Rangel (D-N.Y.). “It’s decorated with every cut you can think of for Republican supporters.”

Democrats argued that it was reckless to pass a tax cut that soaks up almost all of the projected surplus, leaving nothing to spend on domestic programs, to reduce the national debt or to leave a margin for error in surplus projections.

Republicans responded that Democrats’ reluctance to cut taxes showed that even the emergence of the surplus cannot change their liberal leanings.

Along with the across-the-board cut in income tax rates and phasing out inheritance taxes, the House bill would:

* Reduce the marriage penalty by increasing the standard deduction allowed for couples filing jointly from $7,200 now to $8,600 beginning in 2001.

* Cut capital gains taxes, which apply to profits from the sale of stocks, property and other assets. The top rate for individuals would drop from 20% to 15%.

* Allow Medicare beneficiaries to deduct the cost of prescription drug insurance coverage, a proposal designed to counter Clinton’s proposal to provide a new drug benefit for Medicare beneficiaries.

* Allow self-employed individuals to deduct the cost of their health care and long-term care insurance expenses, beginning in 2001.

* Increase from $500 to $2,000 the amount taxpayers could put each year in tax-sheltered education savings accounts; taxpayers also would be allowed to use the accounts for elementary and secondary education, rather than solely for higher-education costs.

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Comparing the 2 Tax Plans

House and Senate Republicans both back $792-billion tax cut plans. But the measures differ significantly in terms of which taxpayers would receive most of the benefits.

* Income

House: Trims income tax rates by 10% across the board over a 10-year period. The largest benefits would go to those who pay the most in taxes. A family with $55,700 in taxable income would see their taxes fall by $1,000; a family with $25,000 would receive a $380 cut.

Senate: Decreases the lowest tax rate from its current level of 15% to 14%. That means individuals would pay $3,500 for their first $25,000 in taxable income instead of $3,750. The lowest tax bracket also would expand, making more people eligible for it.

* Inheritence

House: Elimates inheritence taxes on gifts and estates by 2009. Under current law, transfers to heirs up to $650,000 are exempt (that mark is to increase to $1 million by 2006).

Senate: Cuts the inheritence tax rate on the largest transfers to 50% from the current 55%; raises the amount exempted from taxation to $1.5 million in 2007.

* Capital Gains

House: Cuts capital gains taxes on profits from the sale of stocks and other assets. Individuals’ profits now taxed at 10% would drop to 7.5%; those taxed at 20% would be lowered to 15%.

Senate: No provision.

* Marriage Penalty

House: Eases the “marriage penalty,” a quirk that increases taxes on many two-income spouses when they file jointly. The plan would boost the standard income tax deduction; a couple receiving a deduction of $6,000 today would receive $8,600 in 2002.

Senate: Eliminates the penalty by giving married taxpayers the option of being treated as two individuals on the same tax return.

Compiled by Stephen Fuzesi / Los Angeles Times