Bush Kills Democratic Tax-Cutting Measure : Budget: Veto signals an election-year attack on Congress. President also orders federal spending freeze.

President Bush, carrying out a vow he has repeated virtually every day for the past several weeks, vetoed Democratic tax-cut legislation passed by both houses of Congress late Friday, complaining that it would raise taxes for wealthy Americans and “stifle growth.”

Bush signed his veto message even before Congress gave final approval to the bill, which contained a tax credit for most Americans, a capital gains tax cut and other tax reductions financed by a higher top income tax rate and a special “millionaire’s surtax.”

“Congress could not resist their natural impulse to raise taxes,” the President said in a speech delivered in the White House East Room barely 10 minutes after the Senate completed work on the measure. “When the bill is sent down tonight, this signed (veto) message will be waiting for it . . . the minute the bill arrives.”

Launching a major election-year attack on Congress that is expected to signal his theme for the remainder of the 1992 campaign, Bush also ordered a 45-day freeze on spending for 68 federal programs for which Congress appropriated funds last year.

The affected programs range from traditional public works “pork-barrel” projects to specific grants that Bush contended were patently ridiculous. If Congress grants Bush’s request to make the funding freeze permanent, the move would save an estimated $3.6 billion.

Congressional passage of the Democratic tax bill, Bush’s veto message and the funding freeze announcement all were carefully timed to coincide with the March 20 deadline imposed by the President for passage of his original package of tax-relief proposals.

Although Congress technically met the deadline, Bush castigated lawmakers for ignoring his original proposals and crafting their own package, calling it part of a broader “pattern” of congressional refusal to follow voters’ wishes. “No wonder Americans are angry,” he shouted.

He admonished the Democrats to go back and enact his original proposals without any tax increase. “Do so . . . and I’ll sign it,” he said, “and then let’s get on to the long-term agenda. But stop holding the American economy hostage in a partisan game.”

Democrats reacted almost immediately--and just as harshly--charging Bush with using the White House to launch a purely partisan campaign and with ignoring the fact that Congress is an independent branch of government.

“The President doesn’t want a (tax-cut) bill, he wants an issue,” Senate Majority Leader George J. Mitchell (D-Me.) said at a press conference following Bush’s speech. He urged Bush to “start acting like a President, not a panicky candidate.”

House Speaker Thomas S. Foley (D-Wash.) called Bush’s message “the most partisan speech that I have heard a President deliver. We didn’t hear a statement by President Bush--we heard a statement by candidate Bush,” he told reporters.

The President’s action is expected to kill prospects for any broad-scale tax relief for the rest of the year and turn the tax issue into a political football.

Democratic leaders said they were unlikely to craft new tax legislation, at least for several months.

The vote in the House was 211 to 189--a somewhat larger margin than approved previous versions of the bill but still well short of the two-thirds majority needed to override Bush’s veto. Approval in the Senate came on a vote of 50 to 44.

The massive legislation, which combines major features of previously approved House and Senate bills, includes a tax reduction for middle-income Americans and modified versions of six of the seven tax-cut provisions that Bush initially proposed in January.

But few of these proposals were adopted in anything close to the form that the President had suggested, and the bill also contained substantial tax increases for the rich.

The Democrats say the increases are needed to help finance the tax reductions, but Bush strongly opposes them.

Each party has been hoping to blame the other for blocking the legislation, with Bush lambasting the Democrats for pushing through a tax increase and Democratic leaders criticizing him in turn for denying a tax cut for the middle class.

Moments before the House vote on the bill, Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, sounded the Democrats’ trumpet call, contending that “we have met the President’s challenge” and crafted a “fairer” bill than Bush proposed.

Rostenkowski pleaded with Bush not to veto the Democratic measure and its tax cut for middle-income Americans. “Stand tall for the middle class, Mr. President,” Rostenkowski urged. He also warned the President that “Congress is not a rubber stamp.”

But Rep. Bill Archer (R-Tex.), the chief Republican opponent of the bill in the House, argued that Bush would be right to reject the measure because “it will not create any jobs or provide any growth anywhere.” He called the bill “a freight train that is headed nowhere.”

As has been the case in previous balloting, the votes in both chambers were essentially along party lines. Still, a full 40 House Democrats broke ranks to oppose the bill, reflecting a widespread fear that it would not help the economy and might only increase the federal budget deficit.

For 1992 and 1993, the Democratic measure would have offered working Americans a temporary tax credit of $150 a person, designed to offset Social Security payroll taxes. For 1994 and beyond, it would have provided a permanent tax credit for families, amounting to $300 for each child age 16 or under. In both cases, the credits would decline for people earning $50,000 a year or more. Those earning $70,000 or more would not be eligible.

The bill also would have reduced tax rates on capital gains--profits from the sale of stocks or other assets--but would have targeted the cuts so that lower-income taxpayers would have received the biggest breaks.

To help pay for these cuts, the measure would have raised taxes on the rich by establishing a new maximum tax rate of 36% for people with incomes of $115,000 or more--up from 31% now--and by imposing a 10% surtax on income of $1 million or more.

Although Bush had been threatening the veto for weeks, his actual rejection of the measure was expected to intensify partisan bitterness in Congress.

Democratic leaders had rushed to meet the March 20 deadline he set, pushing aside other bills to pass the tax legislation.

Where Tax Cuts Were Targeted

In vetoing the Democratic tax-cut measure, President Bush charged that it would raise taxes for wealthy Americans and “stifle growth.” Here is a breakdown of what the impact of the bill’s major tax provisions would have been on various income groups: Percentage of tax benefits going to each income group:

Middle- Tax **Cut in Tax Income Credit Capital Increases Tax for Gains on the Credit Families Taxes Rich Income brackets: Less than $10,000 * 7.1% 0% 0% $10,000-$20,000 7.7% 21.4% 0% 0% $20,000-$30,000 22.2% 22.4% 0% 0% $30,000-$40,000 22.1% 18.6% 0% 0% $40,000-$50,000 21.8% 14.4% 0% 0% $50,000-$75,000 26.1% 16.1% 0% * $75,000-$100,000 0.1% 0.1% * * $100,000-$200,000 * * 1.8% 4.9% $200,000 and over 0% * 41.9% 95.1%

* Less than 0.05%

**Percentage of total returns

Source: Joint Committee on Taxation