House Democrats Approve Revised Tax-Cut Package : Economy: Caucus removes a provision that would have reduced levy on corporations. Plan is one of three to be considered next week.

TIMES STAFF WRITER

The House Democratic Caucus grudgingly approved a package of election-year tax cuts Thursday after removing a controversial provision that would have reduced income taxes for corporations.

The approval means that the full House will be asked to choose among three tax-cut plans next week--the Democratic bill, the package that President Bush proposed Jan. 28 and a streamlined version of the President's plan crafted by House Republicans.

Democratic House leaders said Thursday they believe they will be able to muster enough votes to defeat both Bush's package and the GOP plan and then enact their own plan and send it to the Senate.

House Speaker Thomas S. Foley (D-Wash.) told reporters after the caucus session he was confident that the Democratic alternative would prevail. "This does more for tax fairness, this does more for economic equity," he said.

But several lawmakers warned that sentiment for the package was so thin during Thursday's caucus that it still was unclear whether enough Democrats ultimately would support the measure, even without the reduction in the corporate rate.

"It's going to be very tight," said Rep. James P. Moran Jr. (D-Va.), who emerged from the caucus early after listening to both sides. "There are going to be a lot of people who hold their noses and vote for this--probably myself included."

Participants in the caucus said opposition to the proposed cut in the corporate tax rate was the most strongly voiced sentiment in the session, but that some members objected to virtually every major provision in the bill, even to enacting any tax cut at all.

Apparently weighing heavily on some members' minds was the victory of former Sen. Paul E. Tsongas (D-Mass.) in the New Hampshire primary on Tuesday. Tsongas is the only major Democratic presidential candidate who opposes the Democratic tax-cut plan.

The centerpiece of the Democratic plan is a $200-a-person tax credit aimed at helping middle-income taxpayers, combined with a reduction in tax rates on capital gains--profits from the sale of stocks or other assets--and breaks for business and real estate.

It would pay for these tax cuts by raising taxes on the rich, increasing the maximum tax bracket for those earning $85,000 or more to 35%, from 31% now, and imposing a 10% surtax on millionaires. Bush opposes the bill primarily because of these tax increases.

Bush's plan would provide a similar menu, but would provide a less-generous tax break for middle-income Americans and would postpone it until next January, and would pay for the tax cuts by changing the accounting rules for some portions of the federal budget.

Meanwhile, Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee, said any tax-cut bill that his panel crafts will be paid for by raising taxes elsewhere--as would the House bill--and not by rechanneling savings from defense spending cuts, as he urged in October.

Bentsen's committee is scheduled to begin drafting its own version of the tax bill on Feb. 27. The Texas Democrat has not said yet precisely what it will contain, but strategists expect it to be closer to the House Democratic alternative than to Bush's original package.

Thursday's approval by the House Democratic Caucus came after a contentious closed-door session. Caucus members expressed strong reservations about various portions of the bill and forced a poll on a proposed one percentage-point cut in corporate tax rates, after which it was eliminated from the bill entirely.

During the debate, Foley and House Majority Leader Richard A. Gephardt (D-Mo.) made an emotional appeal for party unity, telling Democratic lawmakers that they must support the package for the sake of the party's fortunes in this year's elections.

Foley told reporters after the caucus that except for the elimination of the proposal to cut corporate tax rates there would be no more changes in the Democratic plan before it goes to the House floor next Wednesday.

The decision to eliminate the corporate tax-reduction marked the second time in two days that the provision was the center of debate.

After similar opposition on Wednesday, tax-writers limited the cut to two years instead of making it permanent, as had been sought.

Also eliminated from the bill, as part of the corporate tax-cut section, was a provision that would have reduced the alternative minimum tax, which is assessed on corporations whose deductions are so large that they would not otherwise be liable for any tax.

The opposition to the corporate rate cut came from two quarters: Liberals contended the cut in corporate tax rates should not even be in the bill, pointing out that revenues were scarce and this time business had not formally sought more tax relief.

And business itself was split. While industries that are making profits generally welcomed the proposed cut in corporate rates, those which are posting losses complained that they would not be able to benefit from it. Although many Democrats have said they would prefer not to enact a bill, House leaders argued that the party had gone so far out on a limb to promote a tax-cut plan as part of its campaign rhetoric that it could not afford to back away now.

Rep. Leon E. Panetta (D-Carmel Valley) pointed out that many now feared new GOP criticism if the Democrats were to back away.

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