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GOP’s Tax-Cut Drive Hits a Snag : Congress: Some House Republicans seek to limit eligibility for proposed breaks. Packwood says Senate will insist on trimming spending to offset reductions.

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TIMES STAFF WRITER

House Republicans have hit a snag in what once appeared to be their most popular campaign promise: tax cuts.

The GOP leaders are being pressed to reconsider their plan to extend tax breaks to a wide range of Americans, including the affluent. The result could be a substantial rewriting of a tax-cut package that is central to their “contract with America” and precious to House Speaker Newt Gingrich (R-Ga.) and Majority Leader Dick Armey (R-Tex.).

The controversy that raged behind closed doors last week is expected to break into the open as House leaders discuss strategies for bringing three of their most politically volatile campaign promises--welfare reform, congressional term limits and tax cuts--to the House floor.

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And the tax bill faces tougher sledding yet in the Senate. Bob Packwood (R-Ore.), chairman of the Senate Finance Committee, which will have first crack at amending the House bill, said Sunday on ABC-TV’s “This Week With David Brinkley” that the Senate would not even consider the tax reductions unless they are offset by spending cuts. He promised “absolutely no tax cuts unless they’re paid for.”

In the House, Rep. Greg Ganske (R-Iowa), a freshman who has been prodding House leaders to redraw their tax package, is expected to release a letter Tuesday signed by more than 100 moderate and conservative Republicans seeking changes in the tax bill once it is brought to the floor.

That letter, according to several Republicans who signed it, asks Gingrich to allow a vote on an amendment to the tax package that would limit eligibility for a $500-per-child tax credit to families making $95,000 a year or less. In their “contract with America,” Republicans had promised to extend that tax break to families earning as much as $200,000.

“A lot of people for a long time have been uncomfortable with the charge that this is a benefit to wealthy people at a time when there’s going to be some strain in some other programs,” said Rep. David L. Hobson (R-Ohio), who signed Ganske’s letter. “You get tired of hearing the rhetoric from the Democrats, and people are saying, ‘Hey, let’s take this issue away from them.’ ”

On Sunday, President Clinton’s top economic adviser, Laura D’Andrea Tyson, said on NBC-TV’s “Meet the Press” that more than half of the Republicans’ tax package would benefit families with annual incomes of more than $100,000, and 20% of the package would help people in the top 1% of the income distribution. By contrast, she said, 85% of Clinton’s more modest “middle-class tax package” would benefit families with incomes of less than $75,000.

The bid to amend the Republican tax package has also gained the support of a growing group of GOP lawmakers who worry that any tax cuts at all may send the wrong signal about Republicans’ determination to balance the budget. That concern has been heightened in recent weeks as Republicans and Democrats fought bitterly over some $17.1 billion in spending reductions from the 1995 budget, a partial offset for the $188-billion cost of the Republican tax cuts over the next five years.

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Rep. Ray LaHood of Illinois is among the Republicans who signed Ganske’s letter out of concern for the deficit. He said in an interview that House members should have a chance to vote on a package of tax cuts that would have less impact on the Treasury.

LaHood and other Republicans have been citing polls that show a majority of Americans believe deficit reduction should be the government’s first concern. In one recent NBC/Wall Street Journal poll, 53% of those asked said that spending cuts should go to reduce the deficit, while only 26% said savings should be used to pay for tax cuts.

“People have really gotten the message about deficit reduction and are communicating it to their elected leaders,” said Martha Phillips, executive director of the Concord Coalition, which has lobbied lawmakers to make deficit reduction their priority.

But Phillips, echoing the sentiments expressed by many Republicans privately, added that GOP members “are stuck between their contract promise and the real world.” That has made it difficult for many influential Republicans, particularly Budget Committee Chairman John R. Kasich of Ohio, to publicly support the latest bid to scale back on the promises in the 100-day legislative agenda.

On “Meet the Press” Sunday, Kasich said he did not support Ganske’s bid to narrow the eligibility requirements for the GOP tax cut. “Americans have been told you can’t have any tax relief and balance the budget,” Kasich said. “Can we. . . ? The answer is yes.”

“Our leadership is so committed to this, a major change is not going to happen,” LaHood said. “It’s part of the contract, and they’re not going to deviate from it.”

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But LaHood added that Gingrich and Armey, as committed as they are to the GOP tax package, “will find a way to pass something” and to “mollify” the sizable group of Republicans calling for changes.

Kasich also said Sunday that defense spending would be frozen over the next five years at $270 billion a year under an agreement reached among House GOP leaders. Clinton had proposed short-term cuts in defense spending.

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