Democrats, GOP Map Out Rival Tax-Cut Approaches

With public restlessness growing over the prolonged recession, senior Bush Administration officials and leading Democrats in Congress both committed themselves on Sunday to intensive tax-cutting efforts this fall aimed at stimulating the sluggish economy.

But with the 1992 presidential campaign gearing up, the two sides once again staked out radically different approaches, indicating that the White House and Congress could be headed for another year of stalemate on tax and budget policy.

On Sunday, Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) unveiled a proposal to cut taxes for the middle class by $72.5 billion over five years, a benefit that would be paid for by a corresponding 5% reduction in defense spending. Bentsen argued that the collapse of the Soviet Union “means we can make more significant savings in defense spending” than previously forecast.

The central elements in Bentsen’s program are a $300 tax credit for every child in a family, and a dramatic expansion of the benefits of individual retirement accounts for middle-income Americans--including a provision to once again make IRA contributions tax deductible for all Americans. In addition, the bill would allow the annual $2,000 limit on IRA contributions to rise with inflation and permit consumers to make penalty-free withdrawals for home purchases, college tuition payments or medical care expenses.

For a family of four earning $35,000 a year, the child tax credit would reduce the federal income tax bill by $600, or 25%, Bentsen said.

“One of the biggest deterrents to us coming out of this recession is consumer pessimism . . . at the present time, they have neither the will nor the wallet to spend money,” Bentsen said on the CBS News program “Face the Nation.” “This would give you a short-term stimulus for middle-income America that’s worst hit in this situation.”

Bentsen added: “It’s time for more than just talk.”

Meanwhile, both White House Chief of Staff John H. Sununu and Senate Minority Leader Bob Dole (R-Kan.) publicly endorsed a Bush Administration economic growth package, expected to be introduced within the next two weeks, that would be centered on a capital-gains tax cut.

But to counter Democratic charges that the White House is merely offering tax breaks for the wealthy, the Administration also plans to include in its growth package some tax cuts designed to appeal to the middle class.

Although Bush has not decided exactly what the provisions of the package would be, Administration officials say it probably would include business investment tax credits, an expansion of IRA benefits and reductions in Social Security tax payments for the middle class.

“We are not trying to have a giant package,” Dole stressed on the NBC News program “Meet the Press.” “But we want enough to just sort of prod the economy, get money in the hands of people who are going to spend it.”

Dole insisted that the Bush tax cuts would not bust the deficit-reduction rules of the current budget agreement, which requires any tax cuts to be paid for by spending reductions or tax increases elsewhere. “We think we have (a package) that can be paid for,” Dole insisted. “It has got to be within the budget agreement or it is not going to sail.”

Dole also warned both Democrats and Republicans against becoming caught up in a tax-cutting fever that might lead to a “bidding war” over who could lower taxes the most. That would only result in a bidding war to see “who can add the most to the deficit.”

Still, Democratic leaders countered that the Bush plan would reopen the budget agreement--and would do so only to help the rich.

Senate Majority Leader George J. Mitchell (D-Me.) argued Sunday that the Democratic and Republican approaches to tax cutting this fall will be fundamentally at odds. “I think the central focus of the tax cut ought to be the middle class,” Mitchell said on “Meet the Press.”

“I mean that is the difference we have,” Mitchell said. “The capital-gains tax cut as proposed by the President would primarily benefit those whose incomes exceed $200,000 a year. We want to primarily benefit those in the middle. Instead of cutting taxes for one family whose income is $300,000 a year, we think we ought to cut taxes for 10 families whose income is $30,000 a year.”

But Sununu dismissed both Bentsen’s plan and the Democratic charges that the Republicans were out of touch, and urged Congress to pass tax incentives for business to create new jobs.

“I think what the Democrats ought to do is go back and pass the kind of incentives for investment and job creation that the President has been asking for since 1989,” Sununu said Sunday on the ABC News program “This Week With David Brinkley.” “The President has asked them to pass legislation that would help create jobs, and for over 2 1/2 years, they have created a political impasse that has kept that from being passed. I think that is the most appropriate thing to be done at this point.”