Key House Panel Approves GOP Tax Cut Bill

With remarkable speed, Republicans pushed their $189-billion package of tax cuts through the House Ways and Means Committee on Tuesday after Democrats abruptly abandoned efforts to modify it.

Committee Democrats, in a sharp reversal of their earlier strategy, dropped nearly 100 amendments that they had planned to offer in an effort to slow down the GOP tax bill, which would include a $500-per-child tax credit for most families and a 50% cut in capital gains tax rates. Instead Democrats proposed just one amendment, which would have limited the life of the tax cuts to five years. When that effort was defeated on a party-line vote, the tax-writing panel passed the entire package, 21 to 14, also on a straight party-line vote.

“It wouldn’t make any difference if we put up an amendment to have the American flag be red, white and blue with 50 stars. We couldn’t pass it,” said Rep. Jim McDermott (D-Wash.).

But the quick committee action does not guarantee smooth sailing for the tax cuts, which form the centerpiece of the House Republicans’ “contract with America.” Opposition is growing among Senate Republican leaders, who want to keep their focus on deficit reduction to live up to their promise of balancing the budget by 2002.

In response, House leaders promised again Tuesday not to bring up the tax cut bill for a floor vote before the House approves offsetting spending cuts.

“Not one single cent of tax relief will be provided unless it is offset by spending reductions,” vowed Ways and Means Chairman Bill Archer (R-Tex.).

Republican leaders are still far short of identifying enough spending cuts to cover the $189-billion five-year cost of the tax plan and are not expected to try to bring the tax and budget package to the House floor before late April.

Increasingly concerned by public opinion polls that show deficit reduction is a far higher priority with voters than cutting taxes, the House leadership appears to have lost much of the sense of urgency for moving on tax cuts.

House Speaker Newt Gingrich (R-Ga.) announced Tuesday that the first $17 billion in budget savings identified by Republican leaders would go to deficit reduction and not to pay for tax cuts.

The decision by Ways and Means Democrats to abdicate in the face of long odds apparently was spurred by internal divisions on key issues. Several Democrats also conceded that they had been so disheartened by legislative defeats that they saw little use in fighting another battle that they knew they could not win.

“We decided . . . it didn’t make much sense to offer amendments,” said Rep. Robert T. Matsui (D-Sacramento).

Democrats were left to warn against the long-term consequences of the tax proposal. They cited the Clinton Administration’s estimate that Americans in the top 1% income bracket would receive 20% of the benefits of the legislation.

Archer estimates that the GOP package would reduce the taxes of households earning $30,000 to $100,000 by 4% or more, while providing households earning more than $200,000 with a 2.9% cut. “If you are a hard-working, overburdened American family, relief is on the way.”

Like the contract issued during the 1994 congressional campaign, the new tax bill is highlighted by a $500 tax credit for children under 18 in families earning less than $200,000. The child credit is by far the most costly element of the GOP bill. It would cut federal revenue by $104.9 billion over five years.

The most controversial element of a wide array of business tax breaks is the proposal for a 50% reduction in the capital gains tax, plus a provision to adjust the tax for inflation. The plan also calls for a “back-loaded” individual retirement account, which Republicans say would increase family savings but which critics charge would lead to soaring federal deficits.

The proposal would create a new IRA in which individuals could invest after-tax income; they could then withdraw their money tax-free when they retire or for use in special circumstances, such as the purchase of a first home or for educational and medical expenses. Critics said that the costs in lost tax revenue could balloon in the future as retirees draw out huge amounts of money on which no taxes would be owed.

The Republican plan includes other provisions designed, Republicans said, to reinforce the traditional family structure: a repeal of the “marriage penalty” in which two-income couples pay more than if both were single, an expanded spousal IRA designed for parents who stay home with their children and new tax breaks for the costs of adoption and the care of elderly parents.

Meanwhile, for senior citizens, the bill repeals the tax increase on the Social Security benefits of affluent retirees, which was a key element of the 1993 Clinton economic plan.

Times staff writers Michael Ross, Janet Hook and Edwin Chen contributed to this story.