GOP to Press Tax-Hike Bill That Targets Business, Poor : Budget: House legislation would raise total of $50 billion over 7 years. Protests could make passage difficult.

Taking another politically perilous step in their march toward a balanced budget, House Republicans have decided to push for passage of significant tax increases that would hit both moneyed business interests and low-income working families.

The tax-hike bill, drafted by Ways and Means Committee Chairman Bill Archer (R-Tex.), would raise about $30 billion over seven years by eliminating tax breaks for an array of corporate interests--including the movie industry, pharmaceutical manufacturers and insurance companies.

In addition, it would generate $20 billion over the same period by imposing new restrictions on the earned income tax credit, which was designed to pull working families out of poverty.

The proposed increases would be linked to a $245-billion package of tax reductions that are considered the centerpiece of the GOP’s tax policy. Those, in turn, would become part of a far-reaching package of deficit-reduction measures expected to move through Congress this fall.

Likely cries of protest from movie moguls, insurance agents and others who stand to lose substantial tax advantages under Archer’s legislation could add to the difficulty of passing the GOP budget package, which already contains politically explosive proposals to curb the growth of Medicare, cut farm subsidies and slash spending across a broad range of federal programs.

The Center on Budget and Policy Priorities, a Washington-based research group, was quick to criticize the proposed new restrictions on the earned income tax credit. The center noted that the $30-billion reduction in business tax subsidies would pale in comparison to the business tax breaks that would remain on the books and the new ones that Republicans have included in their $245-billion tax-relief package.

Indeed, some of the proceeds from cutting business tax breaks, derided by some critics as “corporate welfare,” would go back to other businesses. The Archer bill would extend several tax breaks that are about to expire, including one for research and development expenditures that is important to many businesses.

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Some Republicans acknowledged that they hope Archer’s effort to scale back or eliminate more than two dozen business tax breaks will help insulate the GOP from growing criticism--from across the political spectrum--that it is not doing enough to fulfill its promise to eliminate inappropriate business subsidies at the same time it reduces spending on assistance programs for the poor.

Washington groups ranging from the left-leaning Public Citizen to the middle-of-the-road Public Policy Institute to the libertarian Cato Institute, have criticized the GOP for not doing more to cut corporate subsidies in federal spending on such agencies and programs as the Export-Import Bank, the Maritime Administration and an Agriculture Department subsidy for overseas promotion of American products, such as Gallo wine and Chicken McNuggets.

In May, the Cato Institute study reported that more than $85 billion would be spent during the current fiscal year on programs subsidizing private businesses. More recently, the institute reviewed the appropriations bills approved so far by the House and concluded that “corporate welfare” had been cut by only 9%.

“Republicans are furiously backpedaling from their promises to be tightfisted,” Stephen Moore, Cato’s director of fiscal policy, wrote this summer. If Republicans “balk at cutting aid to dependent corporations, they will soon look like fiscal frauds,” he wrote.

Indeed, it looked at one point like Republicans might balk at cutting business tax benefits at all. Earlier this year, Archer criticized recommendations from the House Budget Committee that called for raising $25 billion in revenues from curbing so-called corporate welfare.

House Budget Chairman John R. Kasich (R-Ohio) insisted that rooting out corporate welfare in the tax code and federal spending programs is important to convince the public that the pain and sacrifice caused by the GOP budget-balancing plan would be equitably shared.

Archer, however, bristled at the very term “corporate welfare,” and warned fellow Republicans that the elimination of a loophole would be seen as a tax increase, which the GOP is devoted to opposing. But he has always said that he is willing to comb the tax code for “inappropriate” business subsidies. That, he now says, is the point of his new tax bill.

Kasich hailed the proposal as a “tremendous cultural change for the Republican Party.”

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“They talked about closing loopholes and we’re doing it,” said Kasich. “This is a message to people who work on assembly lines and in convenience stores that everyone has given.”

One of the biggest and most controversial tax breaks that Archer would eliminate is a credit enjoyed by U.S. firms operating in Puerto Rico and other U.S. territories.

Archer proposes a 10-year phaseout of the credit, which primarily benefits pharmaceutical companies. The drug makers are expected to lobby hard to preserve the tax break.

Hollywood would be hit by a proposal to tighten rules governing the way film producers and others in the entertainment industry write off expenses. Special rules now allow filmmakers to write off expenses more rapidly than other industries, based on projections of the income their films will make over time. Archer’s bill would require additional forms of income to be counted in those projections, according to a source familiar with the plan, who said that the change would raise about $300 million in revenues over seven years.

Another big-ticket item, which is likely to meet heavy opposition from thousands of insurance agents around the country, would end an important tax advantage for corporate-owned life insurance policies. The Archer proposal would raise about $5 billion over seven years by ending a deduction that makes it profitable for companies that take out life insurance on their workers and borrow against the policies.

Some of the proposals run afoul of Republicans’ constituent interests. Rep. Nancy L. Johnson (R-Conn.), whose home state is heavily dependent on the insurance industry, said that the proposal on corporate-owned life insurance is “a real body blow.” She said that she would try to ease its effects during committee debate.

Other provisions of the bill would cut tax subsidies for ethanol, terminate after 1997 a tax credit for builders of low-income housing and allow certain businesses to withdraw excess pension fund assets.

The working poor would be hit by Archer’s proposed limits on the earned income tax credit, which cuts the tax burden of households earning up to about $27,000 a year--a program that Republicans traditionally have praised because it rewards work.

Archer’s plan would reduce the annual income limit on eligibility for the credit to about $23,600 and disqualify entirely workers without children. The bill would make it harder for the elderly to qualify by requiring that Social Security be counted as income in determining eligibility. Archer said that the changes are “designed to cut fat while protecting the benefits of working families who need help the most.”

Democrats criticized the plan, saying it would undermine efforts to get people off welfare and into jobs.

“They are punishing people already in the work force,” said Rep. Sander M. Levin (D-Mich.). “We need to tighten up the EITC, but we don’t need to destroy it.”

Efforts to scale back the credit recently received a boost in the Senate when one of the credit’s biggest critics was named chairman of the tax-writing Finance Committee. Sen. William V. Roth Jr. (R-Del.), a leading sponsor of legislation to curb the credit, this week took over the chairmanship from Sen. Bob Packwood (R-Ore.), who is resigning from the Senate in the face of allegations of sexual and official misconduct.