Senate Rejects Broad Tax Cut; Vote Splits GOP

The Senate, in a resounding rebuff of House Republicans, voted Tuesday to exclude from its budget bill a massive, $350-billion tax-cut package approved just a week ago by the House.

The 69-31 vote, in which 23 Republicans joined all 46 Democrats to reject the House tax-cut plan, puts the Senate squarely in favor of balancing the budget before reducing taxes. A provision of the Senate budget bill would earmark $170 billion for tax relief, but only if Congress makes good on its promise to erase the federal budget deficit by the year 2002.

The Senate vote is another setback for House Speaker Newt Gingrich (R-Ga.) and his followers, whose aggressive game plan for reducing the role of the federal government has not met with universal enthusiasm in the Senate.

“The Speaker’s crown jewel is gone,” said Sen. Russell D. Feingold (D-Wis.), a leader of the tax-cut opposition in the Senate. Gingrich has insisted that the huge tax-relief package is a key portion of the GOP legislative agenda.

Senate Minority Leader Tom Daschle (D-S.D.) called the vote “a huge defeat for the ‘contract with America’ and the Republican leadership.”

“Everyone except the most extreme members of Congress understand that we have to balance the budget first, before we cut taxes,” Daschle said.

The attempt to persuade the Senate to accept the House tax-cut plan was championed by Sen. Phil Gramm (R-Tex.), a conservative firebrand and one of four senators seeking the 1996 Republican presidential nomination.

Two of his rivals, Majority Leader Bob Dole of Kansas and Richard G. Lugar of Indiana, voted for Gramm’s amendment, while the other, Arlen Specter of Pennsylvania, voted against it.

None of the Republicans who voted against Gramm’s proposal took part in the floor debate. But Democrat after Democrat railed against what they characterized as a GOP ploy to finance a broad tax cut for the well-heeled, using savings wrung largely from social programs for the less well-to-do.

Gramm conceded after the vote that his amendment’s defeat was “clearly . . . a major setback for a tax cut in the contract.”

The vote came during floor debate on a budget blueprint prepared by Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) that would balance the budget over seven years. The Senate budget resolution proposes deep reductions in future growth of a variety of spending programs. Among the most controversial is a seven-year, $256-billion reduction in projected future spending under Medicare, the giant federal health program for the elderly and the disabled.

Domenici’s plan contains no specific tax cuts but it projects a $170-billion “dividend” that would accrue to Washington if passage of credible balanced-budget legislation generates economic benefits such as lower interest costs or increased tax revenue. The money, if it materializes, would be placed in a reserve fund earmarked for tax relief.

The Senate is expected to approve its budget resolution today.

Despite rising howls of protest from senior citizens, education groups and child-advocacy associations about Domenici’s proposals, Gramm sought to finance a House-style tax package by cutting another $142 billion from the estimated future growth of discretionary spending.

His amendment would have granted a $500-per-child tax credit, a 50% reduction in the capital gains tax rate, inflation “indexing” of capital gains, expanded tax benefits for individual retirement accounts, gradual elimination of the income tax “marriage penalty,” and faster reductions in the rate of growth of Medicaid.

“By spending less money,” Gramm said, “my amendment makes it possible . . . to adopt a tax cut.”

He said the tax cut was “not a debate about spending for children, nutrition, education or housing, but a debate about who is going to do the spending,” citing the proposed $500-per-child tax credit as an example. “Parents will do a better job” of making those decisions than the government, Gramm said.

While the defeat of Gramm’s amendment had been expected, the lopsided vote against it was something of a surprise.

During floor debate, Sen. J. James Exon (D-Neb.), the ranking Democrat on the Budget Committee, called Gramm’s proposal unrealistic.

“The plain fact is, we cannot afford a tax cut . . . if we’re going to balance the budget,” Exon said. A tax cut of the magnitude sought by Gramm, he added, “would only ensure that the pain goes even deeper.”

Whether Senate Republicans can muster the requisite simple majority for Domenici’s conditional $170-billion tax-relief proposal is still not entirely clear, despite their 54-46 majority in the chamber.

Seven Republican senators last week signed a letter expressing their “deep concern” over a tax cut “along the lines” of the House proposal, or even a more modest $63-billion tax reduction suggested by President Clinton.

The seven are John H. Chafee of Rhode Island, William S. Cohen of Maine, Mark O. Hatfield of Oregon, James M. Jeffords of Vermont, Nancy Landon Kassebaum of Kansas, Frank H. Murkowski of Alaska and Alan K. Simpson of Wyoming. They all voted against Gramm’s amendment.

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