House Votes Capital Gains Tax Cut in Victory for Bush : Democrats’ IRA Plan Defeated

The House, handing President Bush a big budget victory, today approved his call for a cut in the capital-gains tax and defeated a Democratic alternative to restore tax-deductible individual retirement accounts.

The vote against the Democratic alternative and in favor of Bush’s capital-gains tax cut was 239 to 190.

Only one of the House’s 176 Republicans--Douglas K. Bereuter of Nebraska--broke party ranks and sided with the Democrats. But 64 of the 253 House Democrats who voted sided with Bush. Four Democrats did not vote. There are two House vacancies.

Bush’s proposal calls for a two-year cut, from as much as 33% to 19.6%, in the tax on profits from the sale of such assets as stocks and real estate.

The President’s plan is already part of a $16.5-billion revenue and deficit reduction bill that is expected to be given final approval by the House next week and sent to the Senate. The Democratic alternative would have restored 50% tax deductions for IRAs, raised taxes on the wealthiest Americans to pay for it and cut the deficit by about $23 billion over five years.

Republicans and conservative Democrats who sided with Bush said the tax cut would be a tonic for the economy, and they called the Democratic alternative a sign of a tax-and-spend philosophy.

‘A Step Forward’

“I am very pleased by the bipartisan House vote, which represents a step forward for economic growth, new jobs and American competitiveness,” Bush said in a statement after the vote.

“A lower capital gains rate will reduce the cost of capital and create incentives for investment in the long-term productive capacity of American industry,” he said.

While jubilant Republicans celebrated, Democrats tried to explain or put the best face on their unexpectedly large defeat. Some Democrats said Bush had given the party a good issue for next year’s elections.

“They’ve given us the best issue we’ve ever been able to have,” said Rep. Marty Russo (D-Ill.), a capital gains cut opponent. “Overall, the Democratic Party wins in the long run, and George Bush loses in the long run.”

Rep. Joe Moakley (D-Mass.) said the outcome was “a bad day” for the House Democratic leadership, of which he is a member as Rules Committee chairman.

“Some people felt they were afraid to vote for the tax increase (in the Democratic plan) even though it meant giving people IRAs,” Moakley said.

Rep. Henry B. Gonzalez (D-Tex.) agreed.

“What scared the members here is that they would be on record as being for a tax increase,” Gonzalez said. “That was the fundamental issue.”

Democrats put their hopes on the Senate, where Finance Committee Chairman Lloyd Bentsen (D-Tex.) has offered a proposal to restore tax-deductible IRAs.

But Republicans, surprised at the size of their winning margin, said the House outcome will help defeat Bentsen’s plan.

“We do believe that this larger vote than expected ought to send a powerful message to the Senate about how the people of the United States feel about increasing capital savings and investment in this country,” said Rep. Bill Frenzel (R-Minn.).