Clinton Backs Wider Range of Tax Cuts

President Clinton, seeking to influence talks between House and Senate negotiators on the shape of a massive tax-cut bill, Monday proposed a broader tax break for families with children than he has before. He also proposed a reduction in certain estate taxes and a cut in the levy on capital gains aimed at the middle class.

Under the new proposals, moderate-income families would gain a tax credit of as much as $500 per child, eventually applying to sons or daughters younger than 19.

And, in a significant expansion of his original position, the president embraced more-sweeping tax relief on capital gains--profits from the sale of such assets as stocks, bonds and real estate. In his budget proposal last February, Clinton said he wanted to limit new capital gains tax cuts only to money earned from the sale of a home.

The president continues to oppose a House-passed provision that would allow investors to offset the effects of inflation on capital gains.

The White House described its new tax plan, which was greeted positively by Republican congressional leaders but warily by Democrats, as a fair and affordable alternative to tax packages approved last week by the House and Senate.

All of the tax plans--part of an overall agreement to balance the federal budget by 2002--would combine about $135 billion in cuts with another $50 million in miscellaneous tax hikes and loophole closures over the next five years. But the president argued Monday that the congressional packages are skewed too heavily to the rich and would greatly expand in cost early in the next century.

The House and Senate bills, he said, “include time-bomb tax cuts that threaten to explode the deficit.” He also asserted that they “do not do enough to keep our economy going” with benefits for education and other needs.

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Under the new White House plan, which contains many of the basic elements in the House and Senate bills:

* Families would get a new tax credit that would rise from $400 per child in 1998 to $500 in 1999, and increase with inflation in later years. Children younger than 17 would qualify through 2002, when the age would rise to those younger than 19. The benefit would lessen for families earning more than $60,000, a level set to increase after the year 2000.

* Taxpayers would be able to exclude 30% of capital gains on assets held for more than one year (a proviso designed to discourage short-term speculators). In an important difference with the House-passed tax bill, gains would not be indexed for inflation. The White House also reiterated its plan to exclude from taxation $500,000 in profits from homes sold by couples ($250,000 for singles).

* Estate taxes on family farms and small businesses would be cut. His proposal would shield such estates valued as high as $2.1 million from taxation.

* Students in the first two years of college would receive a tax credit of up to $1,500, starting in 1998, under the plan. Also, third- and fourth-year students and graduate students, as well as some others, would qualify for a tax credit that would increase to 20% of the first $10,000 in tuition and fees after the year 2000. All these credits would be phased out for joint filers earning $80,000 or more.

* Taxpayers would be permitted to tap into their individual retirement accounts for penalty-free withdrawals used for education expenses and first-time home purchases, as well as to invest as much as $1,000 a year tax free in “kid-save” accounts for children’s educations, a first-time home purchase or retirement.

* Taxes on cigarettes would go up 20 cents per pack, raising $14 billion over the next five years to expand children’s health-care coverage and pay for other public health needs.

“We are very pleased the president has taken a giant step closer to our tax-cut plan,” said Rep. Bill Paxon (R-N.Y.). His comment reflected the common view among the GOP congressional leadership that Clinton had moved significantly closer to their position on capital gains and estate taxes.

Also, in the past, the White House has proposed limiting the per-child tax credit to those younger than 13, while Republicans have sought to apply the benefit to older children.

Still, key differences remain between the White House proposal and the congressional bills. GOP plans that have passed the House and Senate both would slash capital gains rates from today’s maximum of 28% to a level of 20%.

Under the White House plan, the capital gains tax rate for the wealthy--those in the highest income tax bracket of 39.6%--would decrease only slightly from the current 28%. But the capital gains tax cuts would be greater for those in the lesser income-tax brackets. For instance, the tax rate for middle-income investors would drop from 28% to 19.8%.

Also, the House and Senate already have agreed to extend tax relief to all kinds of estates, while the White House would limit its proposal to such estates as family farms and small businesses.

“This was an effort to advance the cause of getting a bipartisan tax-cut plan that is more targeted to working families and education” than the GOP proposals, said Gene Sperling, head of the National Economic Council at the White House.

House Minority Leader Richard A. Gephardt (D-Mo.) commended Clinton for continuing to underscore the need for middle-income tax cuts, but made clear that he hopes no further concessions will be made to GOP interests.

“President Clinton planted a flag for protecting middle-income taxpayers today,” Gephardt said. “Democrats hope that flag will remain where it is once this budget debate is over.”