Key GOP Senators OK $245-Billion Tax-Cut Package : Congress: Centerpiece of plan, which Republicans say helps the middle class, is a $500-per-child credit. Other provisions affect IRAs, capital gains and student loans.
Key Senate Republicans reached broad agreement Friday on a sweeping, $245-billion package of tax cuts for families and businesses, increasing the likelihood that both houses of Congress will find common ground on tax relief this year.
The centerpiece of the Senate GOP package, which could be presented to the Senate Finance Committee for a vote as early as next week, is a permanent, $500-per-child tax credit for families. The family tax credit was settled on only after days of wrangling as Republicans sought to squeeze as many tax cuts as possible into a package that also had to fit in with broader deficit-cutting targets.
The tax credit for families with children would be phased out for couples earning more than $110,000 a year, for example, making it somewhat more restrictive than a similar measure that passed the House this year.
Clearly stung by White House charges that their proposals favor the well-to-do, Republicans took pains to emphasize that the tax plan is “family friendly” and its benefits were weighted toward the middle class. In addition to the tax credit for families with children, Republican leaders proposed a series of tax breaks affecting individual retirement accounts, capital gains, inheritances and student loans.
“We said we were going to give tax relief to working, middle-class families, and this really does,” said Sen. Alfonse M. D’Amato (R-N.Y.).
The GOP deal was complicated by political rivalries and cross-currents within the party, including the desire to provide major tax breaks for families but also to adhere to the path to a balanced budget. As one result, final decisions on certain business tax breaks remained at issue.
Nonetheless, Republicans who control the votes on the Finance Committee agreed on key provisions Friday:
* Effective in 1996, families would be granted a new, $500 tax credit for each child. The benefit would start to phase out for single parents with annual incomes of $75,000 and for couples at $110,000. By contrast, the House measure does not begin to phase out until the $200,000 income level, a key difference that will be battled over in the coming days.
* Capital gains taxes would drop for individuals, with the top individual rate of 28% falling to an effective top rate of 19.8%. The new rates for individuals would apply only to investments held for more than one year. The top rate for businesses would fall from 35% to 28%. The new rules would be applied to gains realized after Oct. 13, 1995.
* The exemption for estate taxes, currently set at $600,000, would go up to $750,000; exemptions for estates that are family-owned farms or other businesses would be pushed up to $1.5 million with a partial exemption lingering at higher levels.
* “Corporate loopholes,” totaling $20 billion would be closed, although Republicans Friday did not agree on which ones.
* Income levels for fully deductible IRAs would be phased in to reach about $85,000 for single taxpayers and $100,000 for couples, from $35,000 and $50,000--levels that commonly apply under current law. The proposal would also create a new IRA in which income would be tax-free under certain conditions, but the contributions would not be deductible.
* A new tax credit, not to exceed $500, would be allowed for students, totaling 20% of the interest paid on student loans.
* The marriage penalty would be eased by gradually raising the standard deduction for joint returns, although specific details were not available.
The tax agreement “keeps our word to the American people,” said Senate Majority Leader Bob Dole (R-Kan.), adding that “I think we’ve done a good job.”
Dole said the Republican tax bill will be brought to the full Senate by Oct. 24 as part of the overall budget bill, a significant piece of legislation that will embody much of the GOP push to overhaul domestic policy. In addition to tax cuts, the bill will also encompass major reductions, new limits and other changes in spending throughout the federal budget.
Sen. William V. Roth Jr. (R-Del.), chairman of the Finance Committee, said the new tax package reflected a “fair, equitable” balance between tax breaks for families and corporations, with an estimated 62% of the total reflecting family tax breaks.
“I think it’s really a very historic event, what happened this year,” he said of the Republican bid to overhaul tax and spending policies that have been entrenched for decades.
The Republican deal dashed the hopes of Democrats and some Republican moderates that the final Senate proposal might be much more modest than the House tax package.
So far this year, Democratic proposals on the big issues of taxation and spending have gotten virtually nowhere. Friday’s Senate tax deal was the product of closed-door negotiations which Democrats were neither invited to nor informed of.
“Every American should be suspicious about the tax deals Republicans are cutting behind closed doors,” said Senate Democratic Minority Leader Tom Daschle of South Dakota, adding: “It’s more than coincidence that this deal was cut on Friday the 13th. It’s voodoo economics all over again.”
The tax credit for families with children became an especially thorny one for Republicans, who struggled with it for days. Such activist Republican constituencies as the Christian right pushed vigorously for the measure to include families of all income levels and to be retroactive to this year.
Sen. Phil Gramm (R-Tex.), a rival of Dole’s for the Republican presidential nomination, was pushing for a benefit that would have little in the way of income restrictions. But other Republicans--sensitive to Democratic charges that they were cutting Medicare to finance tax cuts for the rich--opted to exclude the wealthiest families from the benefit.
“The good news is that we have a permanent tax credit for working families,” Gramm said. “Many families with two children will have a thousand more dollars to spend in 1996 than they do today.”
Gramm said the family income caps to qualify for the credit would be raised in House-Senate negotiations later this year. Other lawmakers, however, acknowledged that the restrictions for the very wealthy served a political goal.
“Is it an answer to cynical, demagogic charges that come out of the White House?” asked D’Amato. “The answer is yes--absolutely.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
2 Ways to Cut Taxes
A look at differences between the tax proposals by the Republicans on the Senate Finance Committee and the tax plan passed by the House in April.
Child Tax Credit
Senate GOP: $500 per child tax credit; begins to phase out for single parents at $75,000 and married couples at $110,000.
House: $500 per child tax credit; begins to phase out for families earning $200,000 a year.
Senate GOP: Exemption is increased from $600,000 to $750,000 in most cases; for family-owned businesses the first $1.5 million is exempt from estate tax. A 50% reduction on the estate tax applies to the next $3.5 million of a family owned business.
House: Exemption is increased from $600,000 to $750,000.
Senate GOP: Allows credit of up to $500 for 20% of interest paid on a student loan annually.
House: No provision.
Senate GOP: Would gradually increase the standard deduction on joint returns.
House: Married couples who pay more if they file jointly than separately would receive a credit on their income tax of up to $145.
Senate GOP: Top individual rate would fall from 28% to 19.8%, for investments held longer than one year.
House: Top individual rate would fall from 28% to 19.8%.
Source: Senate Finance Committee, Times Washington Bureau