GOP Tax Cut Plan Survives Challenges, Heads for Vote : Congress: Measure goes to House floor essentially intact after amendments are defeated. Child credit for wealthy taxpayers remains.

House Republicans on Tuesday fought off dozens of challenges to their plan to cut taxes by $189 billion over five years, including an attempt to bar wealthier taxpayers from eligibility for a $500-per-child tax credit.

The action, which came in the House Rules Committee, kept the GOP plan essentially intact and set up a scheduled showdown vote today on the House floor. Lawmakers will be asked to choose between the GOP legislation, a central element of the House Republican “contract with America,” and a package of Democratic amendments sponsored by Minority Leader Richard A. Gephardt of Missouri.

“We’re close, but we’re not quite there,” House Speaker Newt Gingrich (R-Ga.) said late Tuesday of attempts to line up enough votes to approve the tax cut plan, which he and other advocates have touted as an example of pro-growth economics and a fairer tax policy.

House Rules Committee Chairman Gerald B. H. Solomon (R-N.Y.) exulted that today’s floor debate will be “an extremely historic occasion.”

The Republican plan, linked to the goal of a balanced federal budget by the year 2002, would give $500-per-child tax credits to families earning up to $200,000 a year. It features several provisions designed to lighten tax burdens for private companies.

The legislation would also make individual retirement accounts much more beneficial by allowing taxpayers to invest with after-tax money but withdraw their accumulated savings tax-free at retirement. The provision, known as back-loading, would be especially helpful to more affluent workers.

Committee Republicans also fended off amendments that would have lowered taxes or other federal levies for such groups as parents, federal employees, homeowners and others.

Democrats continued to argue that the plan aids the rich at the expense of most everyone else. The package shifts income “from the mouths of babes to the pockets of billionaires,” said Rep. Joe Moakley (D-Mass.).

The Gephardt plan, seeking to put the emphasis of tax relief more squarely on the middle class, would provide several tax benefits for education costs, affecting families with incomes of up to $85,000.

President Clinton, at a Tuesday afternoon press conference, said the GOP tax bill was unfair to the middle class and warned that the high eligibility ceiling on the $500-per-child tax credit would shift the tax burden from the wealthy and lead to cutbacks in education spending. He said tax cuts should be targeted to raise incomes, and called education “the middle-class social safety net.”

Clinton also said he was deeply troubled by the way a congressional conference committee had excised language from a bill that would have kept billionaires from renouncing their citizenship to cut their tax liability. Yet he stopped short of saying he would veto the legislation, which contains a health care tax break for the self-employed, a feature Clinton favors.

The President said he would “look very closely” to see if there are other ways to keep billionaires from escaping their full tax liability.

The tax debate has proved to be a difficult episode for the Republicans because it has highlighted conflicting goals within the party, particularly in economic policy. Nowhere has this been clearer than on the proposed $500-per-child tax credit.

Those worried about the federal budget deficit think the provision would cost too much--an estimated $105 billion over five years. Others, including many of the 106 Republicans who signed a letter last month suggesting a $95,000 annual income cap, believed that the $200,000 limit was too high, making them vulnerable to charges of pampering the wealthy.

Yet others, including a conservative, pro-family coalition, support the proposal on social grounds. And the House leadership, including Gingrich, maintain that it is good tax and economic policy.

“Any time the Republicans have to start getting specific--whether it’s on economic policy or social policy--you start to see divisions,” said Stuart Rothenberg, editor of an independent political newsletter.

Deferring to the wishes of Republican leaders, enough Rules Committee members backed away from the $95,000 income cap for child tax credits--offered Tuesday by Rep. Deborah Pryce (R-Ohio)--to defeat it on a vote of 7 to 6. Pryce had contended that a lower cap reflected a “workable middle ground” closer to middle-class incomes.

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Earlier, Gingrich emphatically defended the child tax credit as an example of Republican policies that rely more on the planning of citizens than the rules of government officials.

“We believe that parents ought to have the first claim on money to take care of their children rather than bureaucrats,” the Speaker said on the TV program “CBS This Morning.” “So given a choice, we’d rather leave the money with the parents than take it away to hire a bureaucrat to do for the children what the parents wouldn’t have the money left to do.”

Tax-cut advocates also contend that tax relief would stimulate economic growth and long-term improvements in the standard of living, an argument similar to the supply-side economists of the 1980s.

Yet this contention is also controversial: “It doesn’t even pass the giggle test,” argued Larry Mishel, research director at the liberal Economic Policy Institute, a Washington research group.

Gephardt’s package of tax amendments, the only Democratic alternatives to be considered today, would establish an income tax deduction for education costs that would rise to $10,000 in the year 2000. It also would create benefits for purchasing savings bonds that are redeemed for education costs and establish a special IRA that would allow withdrawals for retirement and educational expenses without penalty.

Earlier this week, Republicans maneuvered around the biggest threat to the tax package--a rebellion within their own ranks by members who feared that the plan would exacerbate the budget deficit, currently close to $200 billion.

Under the compromise, House GOP leaders agreed that the tax cuts would not take effect unless Congress passes a spending plan later this year that begins a seven-year path to a balanced federal budget by 2002.

Times staff writer Paul Richter contributed to this story.