House OKs GOP Bill to Cut Taxes by $85 Billion

The House passed a Republican-crafted tax-cut bill on Thursday that would provide $85 billion in net tax relief over the next five years--affecting families, college tuition costs, home sales, inheritance taxes and profits from the sale of stocks or other assets.

Approval came on a vote of 253 to 179 after lawmakers defeated--by a party-line 235-197 ballot--a proposed Democratic alternative that would have shifted more of the relief to middle-income taxpayers. Democrats--echoing a complaint voiced by President Clinton--had contended that the breaks were skewed too heavily toward the rich.

The Senate continued debating its own version of the bill, with expectations that it would finish work and vote on the measure today. On Thursday, it turned down, on a 61-38 vote, a proposal by the Democratic leadership that also sought to transfer more benefits to middle-income groups. Seven Democrats joined 54 Republican senators to defeat that proposal.

The House and Senate tax-cut measures will go to a joint conference committee, which will try to reconcile differences between the two versions. The White House is expected to try to enter the talks in an effort to persuade lawmakers to modify some provisions to benefit more middle- and low-income taxpayers.

Many of the provisions in both versions--including tax credits for families and for college tuition and expenses--parallel proposals that the White House sent to Congress earlier this year.

And Clinton, who embraced the basic elements of both the House and Senate bills in a deal he agreed to with Congress earlier this year to balance the federal budget by 2002, is considered likely to sign the legislation--provided the conference committee comes up with a compromise that embraces some of the Democratic changes.

The House bill constitutes the first major tax relief legislation that lawmakers have enacted in 16 years, and it contains several of the provisions in the “contract with America” that the GOP unveiled during the 1994 congressional campaign.

House Republican leaders were ecstatic after Thursday’s vote, promising to try to push through another big tax-cut bill next year as well.

“This is only the first step, folks,” Rep. Bill Archer (R-Texas) told a news conference after the final House vote. “We’re going to be back next year.”

House Speaker Newt Gingrich (R-Ga.), speaking to lawmakers before the final floor vote, called the measure important for “rebuilding [Americans’] trust in the institution of government.”

The bill passed by the House contains these major elements:

* A tax credit for families of up to $500 for each child under 17, aimed primarily at couples whose combined annual income is less than $110,000. Eventually, the credit would be cut in half for those who also claim existing child-care and dependent tax credits.

* A tax break for homeowners who sell their principal residence, enabling them to exempt the first $500,000 in profits from capital gains taxes. The cut would apply to houses sold after May 7, 1997.

* An education tax credit of up to 50% on the first $3,000 in tuition and books for the first two years of college. The benefit would be phased out gradually for individuals with incomes of $50,000 a year or more or couples earning $100,000 a year.

* A cut in capital gains taxes, reducing the top rate to 20%, from 28% now. In addition, capital gains would be indexed to offset the impact of inflation starting in 2001. The House bill also would trim the capital gains rate for corporations to 30% by the year 2000, from 35% now.

* A reduction in inheritance taxes engineered by gradually increasing the limit on the amount of property currently exempt from federal estate taxes to $1 million by 2007--up from $600,000 now.

* Liberalization of restrictions on individual retirement accounts by increasing the income limits and creating new kinds of accounts--open to all taxpayers, no matter what their income is. The interest a depositor earns could be withdrawn tax-free to buy a first home or to retire.

Although the Senate version of the measure is similar to the House bill, it differs in important respects, particularly on the key issue of capital gains tax rates, which have been a major bone of contention between Democrats and Republicans.

The Senate bill, for example, would not index capital gains to account for inflation. Clinton has warned that he will not sign legislation that contains such a provision.

The Senate bill also contains several other key provisions that are not in the House version.

To pay for an extra $8 billion for a new health insurance program for children that the Senate approved earlier this week, it would impose an $8-per-trip tax on airline flights to and from the United States. It also would levy a 10% tax on the domestic segments of international flights.

To help keep the airline tax lower than initially planned, it also would increase the federal tax on cigarettes by about 20 cents a pack, up from 24 cents now.

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The controversy over who receives the bulk of the tax relief was a major element of Thursday’s House debate. Republicans sought to counter the complaints by Democrats that the tax breaks were too skewed toward upper-income taxpayers by insisting that they primarily benefited the middle class.

Both sides used the debate to portray their own party as the one that cares about the voters and the opposition as trying to hoodwink the public.

“If the Republicans weren’t writing this into law, I’d call it robbery,” Rep. David E. Bonior (D-Mich.), the House minority whip, told lawmakers.

But Archer, chairman of the House Ways and Means Committee, brushed aside such attacks. “It’s unfortunate we have to deal with this economic class warfare rhetoric over and over again,” he told fellow lawmakers. “I don’t know where these numbers come from that say the rich get richer.”

The alternative tax-cut plan that House Democrats proposed would have provided for more generous tax credits for college students, limited the $500-a-child tax credit to middle-income families and authorized local governments to issue bonds to finance repairs to schools.

It also would have reduced the inheritance tax further in cases where heirs were about to inherit family-owned farms or businesses. And it would have increased tax benefits for homeowners who sell their principal residence.

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The defeat of the Democratic alternatives in both houses had been widely expected, particularly in the Senate, where Democrats on the Finance Committee already had endorsed the panel’s bill as a “bipartisan” measure.

Senate Minority Leader Tom Daschle (D-S.D.) all but conceded defeat in advance, taking pains to point out that he himself was planning to vote for the GOP-crafted measure if his own party’s proposal failed.

Daschle said the Democrats were proposing their plan despite the odds because “it is important for the American people to know what could have been done. But, he added, “some good things have been done” in the Finance Committee bill. “We don’t want the perfect to be the enemy of the good.”