Democrats’ Tax Plan OKd by Senate, 50-47 : Congress: The $71-billion measure faces a certain veto from Bush, setting off an election-year battle.

The Senate, defying repeated veto threats from President Bush, narrowly approved Friday a massive election-year tax bill drafted by Democrats, paving the way for certain rejection by the President and months of partisan fighting over who is to blame.

The measure, which would cut taxes for middle-income families while raising them for the rich, was approved on a vote of 50 to 47 after Republicans tried unsuccessfully to strip the measure of all tax increases--the portion to which Bush objects the most.

The $71-billion measure, similar to the Democratic tax bill passed by the House earlier this month, now goes to a House-Senate conference committee, which is expected to reconcile the differences in time to send the bill to Bush by the March 20 deadline he set for enactment.

But Bush reiterated Friday that he will veto the legislation “the minute it hits my desk,” and the vote in both houses indicated that Democrats would be unable to muster the two-thirds majority needed to override a presidential rejection. The House vote was 221 to 209.

The tax legislation effectively “is history,” Senate Minority Leader Bob Dole (R-Kan.) told his colleagues as the chamber prepared for the final vote.

As a result, the bill is expected to become a political football for the remainder of the 1992 election campaign, with Democrats contending that the President deprived middle-income Americans of a tax cut, while Republicans charge the Democrats with seeking to raise some taxes.

Although there was some speculation Friday that the two sides might eventually come up with some sort of compromise, congressional strategists said that, as things stand now, they expect both Democrats and Republicans to make no attempt to revive the legislation later.

Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee and chief architect of the bill, said Friday it was “too early to make (the) decision” about whether Congress would make another attempt to pass tax legislation later this year.

The centerpiece of the Senate bill is a tax credit for families, amounting to $300 for every child under the age of 16. The credit would decline gradually for families earning more than $47,500 a year. Those families whose annual incomes total $60,000 or more would not be eligible.

The measure also includes a proposed cut in capital gains taxes, tax incentives for investments in real estate and businesses and proposals long sought by Democrats--from direct federal loans to students to provisions broadening workers’ access to health insurance policies.

Bush has said he opposes any provisions that would increase taxes for upper-income Americans, which conservatives have warned would violate his 1988 campaign pledge to permit “no new taxes” during his term as President.

The President agreed to accept some tax increases as part of his budget accord with Congress in late 1990, and he has been criticized sharply for it by GOP presidential rival Patrick J. Buchanan. Earlier this month, he called it the biggest mistake of his presidency.

The House-passed legislation would provide a $200-a-person tax credit to help offset the Social Security payroll taxes that most workers pay. As in the Senate bill, the tax cut would be financed by raising taxes for the rich.

Both of the Democratic tax bills contain versions of the President’s proposals, but many of them have been diluted or significantly altered. Some Democrats have said they do not favor enacting any tax cut this year for fear that it would exacerbate the federal budget deficit.

Approval of the Senate bill capped three days of parliamentary maneuvering in which senators, acutely aware that the measure was likely to be vetoed, sought to load the legislation with headline-grabbing amendments.

On Friday, for example, the Senate approved a plan by Sen. Alfonse M. D’Amato (R-N.Y.) that would force states to require childless adults seeking welfare benefits to sign up for state workfare or training programs. Any state that balked would face a 10% cut in federal payments.

It also approved a D’Amato proposal to require that would-be welfare recipients live in a state for at least a year before qualifying for full welfare benefits--a move designed to prevent poor families from “shopping” for high-benefit states.

And it voted to adopt a proposal by Sen. Dennis DeConcini (D-Ariz.) that would allow people who have been unemployed for 12 weeks or more to withdraw savings from their individual retirement accounts without incurring the usual 10% penalty.

None of the provisions are expected to survive in the conference committee.

The Senate also rejected, by vote of 43 to 55, a bid by Sen. John Seymour (R-Calif.) to rid the bill of the tax increases aimed at upper-income Americans, including an increase in the maximum income tax rate and a 10% surtax on all earnings above $1 million.

Seymour had sponsored the provision partly to clarify his position on the tax-increase issue following his vote Thursday supporting a provision that would have stripped the bill of the tax cut for the middle class while retaining the tax increases for the rich.

The California lawmaker said Friday that he had intended to support the provision just long enough to embarrass the tax bill’s Democratic sponsors but that he failed to return to the Senate in time to change his vote before the ballots were tallied.

Senate sources said Seymour had tried to have the record changed on Friday but was unable to persuade Democratic leaders to break tradition and permit a “correction.” They said several other Republican senators had found themselves in a similar fix.

The vote on Friday included four Democrats who voted against the bill, joining a solid Republican opposition. California’s two senators split along party lines. Democrat Alan Cranston voted for the measure, and Seymour voted against it.

Part of the reason for the closeness of the vote in both houses is that many rank-and-file Democrats, fearful that the tax reductions would do little good and would only increase the federal budget deficit, were decidedly lukewarm about the proposal.

Sen. Bill Bradley (D-N.J.) made such a point Friday in announcing his opposition to the bill, contending that it would provide only limited tax relief, was “too little, too late to jump-start the economy” and would not reduce the federal budget deficit.

“Given the choice between this bill and no bill at all, I choose no bill,” he said.

Highlights of Senate Tax Plan

Here are the major elements of the tax-cut package approved by the Senate .

A permanent tax credit for families of $300 for each child under the age of 16. The credit would be phased out for families earning $47,500 to $60,000 a year.

An expanded earned-income tax credit for working poor families with children. The proposal would increase the rates used to calculate the credit.

A new 36% maximum tax rate, instead of the current 31% rate, for individuals with taxable annual incomes of more than $150,000, heads of household above $162,500 and couples above $175,000.

A 10% “millionaire’s” surtax on all income above $1 million a year. This translates into a 38.5% top tax rate on that portion of millionaires’ incomes.

A tax credit for first-time home buyers of up to $5,000 over two years. The provision would apply to new homes purchased between February, 1992, and January, 1994.

Penalty-free withdrawals of up to $5,000 from individual retirement accounts to finance first-time home purchases, education expenses or serious medical expenses.

Restoration for all but the wealthiest wage-earners of full deductions for earnings deposited in individual retirement accounts.

A reduced tax on capital gains, with rates reduced more sharply for lower-income individuals and left at current levels for wealthy taxpayers.

A special “venture capital” reduction in capital gains taxes for those who invest in stocks of start-up companies and hold them at least five years.

A deduction or credit amounting to 15% of interest paid on student loans, to a maximum of $300 in most cases. Not available to parents with annual incomes of $70,000 or more.

Restoration of pre-1986 rules that allow construction and real estate firms to use up to 80% of their losses from so-called “passive” investments to offset other income.

Repeal of the 10% excise tax on luxury boats, private airplanes, jewelry and furs.

Source: Times staff writers