Key Democrats Agree to Middle-Income Tax Cut

Bowing to rank-and-file pressure, the Democratic chairmen of the Senate and House tax-writing committees have agreed to propose a tax cut for middle-income taxpayers in October and to push for its adoption next year.

Since the legislation is expected to meet pay-as-you-go requirements of last year’s budget agreement between President Bush and Congress by sharply increasing taxes for upper-income Americans, however, it appears certain to be vetoed with scant chance of an override.

But Democratic leaders in both chambers have decided to press the legislation to sharpen differences on tax policy with the Bush Administration in a presidential election year.

A reluctant Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, and Sen. Lloyd Bentsen (D-Tex.), head of the Senate Finance Committee, have agreed to develop a tax bill and plan to unveil the legislation next month. Committee consideration, however, will be put off until Congress returns in 1992.

House Majority Leader Richard A. Gephardt (D-Mo.), for example, plans a news conference today to publicize a new study which concludes that tax cuts enacted in 1981 have been a huge windfall for the top 1% of taxpayers, while adding to the tax burdens of middle-income families.

In the past, Gephardt has termed middle-income tax cuts the Democrats’ top priority. But until recently Rostenkowski refused to go along on the issue, cautioning that such legislation could start a partisan bidding war for votes.

Rostenkowski also has said that he believes there is a risk in pushing a tax bill: President Bush and his allies may be able to attach their long-sought reduction in capital gains taxes, which would earmark most benefits for wealthy investors, to any tax bill as it proceeds through Congress.

There is still no agreement on precisely what form the tax cut bill will take, however, and strong differences remain among Democrats over whether to target most benefits to families with children, to offer new savings incentives or to cut tax rates for everyone in the middle income brackets.

Bentsen, for example, has lined up 77 co-sponsors in the Senate for an expansion of individual retirement accounts that would encourage savings by making contributions tax-deductible to these do-it-yourself pensions.