House Approves Republicans’ $189-Billion Tax-Cut Measure : Congress: The victory completes action on GOP’s ‘contract with America’ and caps the party’s self-described 100-day revolution. Bill passes on 246-188 vote after a tough intraparty battle.

After a bruising intraparty fight, House Republicans on Wednesday night pushed through a $189-billion package of tax cuts for families with children, retirees and corporations--and completed action on their “contract with America” in the chamber.

The sweeping tax package, described by House Speaker Newt Gingrich (R-Ga.) as the “crown jewel” of the Republican campaign manifesto, was passed on a vote of 246 to 188.

It was approved only after Gingrich and other leaders mollified moderate Republicans who had demanded that the package be changed to reduce benefits for the wealthy and to lock in offsetting spending cuts to avoid a new surge in the federal budget deficit.

“This contract has been an immense amount of work,” Gingrich said in a floor speech summing up the first 100 days just before the final vote. “And despite the rancor that has been aimed at me personally, it has gone about as well as we could have hoped.

“I find standing here tonight truly historic. Two years ago, we were debating a tax increase. Now, we have the last step in the contract here tonight and I urge every member to ask yourself: ‘Won’t a little less money for the government and a little more money for families be a good thing?’ ”

The major elements of the bill designed to benefit individuals include a $500-per-child tax credit for families with incomes up to $200,000. The measure would provide a broad expansion of individual retirement accounts and would roll back higher taxes on the Social Security benefits of affluent retirees.

It also would eliminate the so-called marriage penalty, which means that married couples pay more in taxes than two single people. It would lift the tax threshold for estate and gift taxes and provide new tax breaks for parents who adopt children and families that care for ill parents.

For investors and businesses, the measure would cut the capital-gains tax rate by 50% and then index it for inflation. It would gradually repeal the alternative minimum tax designed to force corporations to pay some taxes, even if they have tax breaks that would otherwise wipe out their tax liabilities.

In addition, it would provide sharply higher tax breaks for investments in new equipment and machinery, as well as accelerated write-offs targeted specifically for small businesses.

House Majority Whip Tom DeLay (R-Tex.) said that the legislative victory was the most difficult of any in the Republican contract and noted that, as early as Wednesday morning, the leadership was still at least 21 votes short and faced a politically devastating defeat.

The votes were changed in a frenzy of last-minute arm twisting of Republicans by Gingrich and other leaders, who emphasized the importance to the party of living up to the contract signed by House GOP members during last year’s election campaign.

“I think people switched as the vote approached, and as the seriousness of the impact on the contract and on the party of a defeat became clear to Republican members,” DeLay said. In the final tally, 11 Republicans voted against the measure and 26 Democrats voted for it.

The vote capped the Republican’s self-proclaimed 100-day revolution. With the completion of their work on the contract on day 91 of those 100 days, the House has now passed 9 of the 10 points of the contract, failing only on the issue of term limits for members of Congress.

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Still, many of the contract’s elements are certain to be altered or defeated in the Senate and may face vetoes by President Clinton. In fact, the tax bill seems unlikely to make much progress once it leaves the House.

Many Senate Republican leaders have expressed opposition to the bill. Notably, Senate Finance Committee Chairman Bob Packwood (R-Ore.), the Senate’s chief tax writer, insists that he believes the public mood has turned against tax cutting and seems unlikely to allow the House bill to emerge from his committee.

Treasury Secretary Robert E. Rubin and White House Budget Director Alice Rivlin have recommended that Clinton veto the bill if it reaches his desk.

But so far, the Senate has defeated only one contract measure--the balanced-budget amendment--and Clinton has yet to use his veto pen. Clinton has signed two of the contract’s provisions into law, a series of congressional reforms and a ban on unfunded federal mandates to the states.

Wednesday’s final vote was treated as a special accomplishment by the House leadership. House Ways and Means Committee Chairman Bill Archer (R-Tex.) said that “with this bill the tax-raising legacy of President Clinton and his party is officially over.”

Republican leaders defeated a series of last-minute efforts by both Republicans and Democrats to amend the bill. And they brushed aside, by a vote of 313 to 119, a Democratic alternative, sponsored by House Minority Leader Richard A. Gephardt (D-Mo.), that focused more of its tax relief on the middle class.

That measure also sought to resurrect a proposal, killed by Republicans earlier, to prevent wealthy Americans from avoiding taxes by renouncing their citizenship.

The final outcome on the tax legislation was largely determined on a critical test vote Wednesday afternoon, when the leadership won on a procedural vote, 228 to 204. Nine Democrats defected to the GOP side, nearly offsetting the loss of 11 Republicans on the vote, which approved rules of debate.

But the Republican victory came only after the leadership agreed to merge the legislation with a spending-reduction bill that would compensate for revenue lost to the Treasury because of the tax cuts. The House also agreed not to put the tax bill into effect until a plan setting out a path to a balanced budget by 2002 is approved.

The House leadership expects to propose just such a long-term budget plan later this year. Republicans claim that it would put the federal government on the “glide path” to a balanced budget by proposing roughly $500 billion to $600 billion in additional spending cuts over the next five years.

But Republicans were not united on the bill even after those compromises were made, as some junior members of the party argued that the leadership’s commitment to the House contract ignores a change in public sentiment about the deficit.

“The truth is we are flat broke,” warned Rep. Scott L. Klug (R-Wis.). “This is a retreat from deficit reduction.”

Democrats charged repeatedly that the Republican plan calls for a massive tax break for the rich, made possible by spending cuts in programs designed to aid the poor and the middle class. “Speaker Gingrich calls this the crown jewel, but it is a synthetic, virtually worthless stone,” argued Rep. Steny H. Hoyer (D-Md.). “Neither our country nor our children can afford it.”

“This Republican tax bill is wrong, it awards billions of dollars to the wealthiest Americans and it hurts the very people we should be helping,” Gephardt said.

The Republican leaders instituted a controversial shift in budget rules to finance the tax-cut package largely through reductions in an array of domestic social programs. Included would be cuts in welfare spending of $66 billion over five years and of more than $100 billion in additional, unspecified programs that Democrats charge are likely to include more reductions in spending for the poor.

While the package would cost the Treasury $189 billion over five years, the Joint Committee on Taxation, the official arbiter of tax matters in Congress, has warned that the costs of the tax cuts will explode after the turn of the century, reaching $630 billion over 10 years.

The enormous long-range costs of the plan have frightened many Republicans and 100 GOP members pushed to scale back the package’s most costly element--the tax credit for families with children. They asked that it apply to families with income of $95,000 or less, rather than to those who make as much as $200,000.

Most of those Republicans agreed to vote for the bill even though that change was rejected by the House leadership. The Republicans who did vote against the bill largely did so because they opposed a provision requiring increased pension contributions from federal employees.

Ultimately, GOP leaders were able to stave off amendments proposed by other Republicans, and presented the bill with only one change in the version first approved by the Ways and Means Committee--the requirement that Congress approve a plan to achieve a balanced budget by 2002 before the tax cuts become effective.

Clinton stopped short Wednesday of vowing to veto the bill yet he made it clear that he believes he can campaign against the measure as a windfall for the wealthy. He said that the bill would require cuts in anti-poverty and children’s programs like Head Start and education “to pay for a tax cut for the wealthiest Americans.”

But Archer and other Republican leaders brushed aside the Democratic attacks.

“The days of tax and spend are over,” Archer said. “The days of smaller government and less taxes are at hand.”

While the House debated the tax bill, Senate leaders tentatively ended a weeklong stalemate by agreeing on a compromise $16-billion package of spending cuts to help reduce the federal budget deficit and offset the costs of disaster relief for California.

Under the compromise, which is expected to be approved today if senators from both parties agree, $800 million in proposed social spending would be restored, while a range of other programs would be cut by an additional $1.6 billion, raising the overall cuts to about $16 billion from the current federal budget.

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What’s In It for You Here are some of the key provisions and costs during the first five years of the House-passed $189-billion tax-cut measure:

Individuals and Families:

Child tax credit: Taxpaying families with incomes of up to $200,000 would be eligible for a $500-per-child tax credit for children age 17 and under. The credit would be phased out at higher income levels. Cost: $104.9 billion.

Marriage penalty: Married couples whose tax bill exceeds the total they would have paid as individuals would receive a credit of up to $145. Cost: $8.2 billion.

Individual Retirement Accounts: Income restrictions would be eliminated, allowing all workers to invest up to $2,000 a year. In a reversal of the current situation, annual IRA contributions would be taxed, but all funds (representing accrued interest as well as principal) that were withdrawn upon retirement or for certain expenses such as education would be tax-free. Non-working spouses would be allowed to make $2,000 annual contributions to traditional IRAs. Cost: $500 million.

Capital gains: The top rate, currently 28%, would fall to 19.8%; the rate would also fall in lower brackets. Cost: $31.7 billion when combined with other capital gains changes.

Adoption reduction: Families earning less than $60,000 who adopt a child would receive a $5,000 tax credit to help defray expenses. The credit would be phased out at higher income levels and eliminated for incomes above $100,000. Cost: $1 billion.

Estate and gift taxes: The amount potentially excluded from estate and gift taxes would increase by $100,000. Cost: $1 billion.

Business

Corporate capital gains: The top rate of 35% would fall to 25%, and brackets would be indexed to inflation. Cost: $31.7 billion when combined with other capital gains changes.

Depreciation: Tax write-offs for investment for plants and equipment would be expanded to reflect inflation. Revenue gain: $16.7 billion (but an $88 billion cost over 10 years).

Small business: Firms would be given a larger deduction for investments in plant and equipment in the year the purchases were made. Cost: $7.8 billion.

Alternative minimum tax: This tax, which ensures that corporations pay at least some tax, would be repealed. Cost: $16.9 billion.

Home office: Taxpayers with no other place of business, who use their home office for administrative work, would be allowed a deduction. Cost: Not available.

Source: House Ways and Means Committee, Congressional Quarterly.

Vote of California Delegation

Here is how California’s congressional delegation voted on the GOP tax plan, which was approved by a tally of 246 to 188.

* Republicans voting yes: Baker, Bilbray, Bono, Calvert, Cox, Cunningham, Doolittle, Dornan, Dreier, Gallegly, Herger, Horn, Hunter, Kim, Lewis, McKeon, Moorhead, Packard, Pombo, Radanovich, Riggs, Rohrabacher, Royce, Seastrand, Thomas.

* Democrats voting yes: Condit.

* Democrats voting no: Becerra, Beilenson, Berman, Brown, Dellums, Dixon, Dooley, Eshoo, Farr, Fazio, Filner, Harman, Lantos, Lofgren, Martinez, Matsui, Miller, Mineta, Pelosi, Roybal-Allard, Stark, Torres, Tucker, Waters, Waxman, Woolsey.

Source: Associated Press