Republican Leaders Propose Tax Cuts, Cap

Congressional Republicans, trying to shift the focus of the looming budget debate from spending to taxes, Tuesday proposed a raft of new tax cuts along with a novel proposal to slap a fixed cap on the portion of money Washington can extract from the U.S. economy.

House Republicans’ chief tax writer, Rep. Bill Archer (R-Texas), said in a speech that he will push for a tax cap that would reduce the overall federal tax burden to 19% of the country’s gross domestic product--down from nearly 20% now--as part of a legislative package to cut taxes by $200 billion over the next decade.

“Taxes remain too high, so I intend to provide additional tax relief--this year,” said Archer, who is also considering eliminating the “marriage penalty” and broadening the lowest tax bracket so a bigger portion of all Americans’ income would be taxed at only 15%.

Archer’s tax-cutting agenda is just one of a variety of tax and spending proposals cropping up as the budget climate is transformed by the prospect of the government soon running a surplus for the first time since 1969.

President Clinton has urged Congress not to spend the surplus before it is in hand, and he has indicated that he will include only limited, targeted tax cuts--and no major proposals to overhaul the tax code--in the balanced budget he will submit to Congress next month.

But in a sign of how pitched the debate over taxes will become, a leader of Clinton’s own party, House Minority Leader Richard A. Gephardt (D-Mo.), Tuesday joined Republicans in calling for an overhaul of the tax code, including elimination of the marriage penalty.

“Just because Republicans have been more skillful in turning the anger about taxes into political gain, Democrats should not devalue that anger as selfish or unworthy of respect,” said Gephardt, a possible rival to Vice President Al Gore for their party’s presidential nomination in 2000, in a speech at the Commonwealth Club of California in San Francisco.

Archer’s speech came as Republicans have been groping for a response to a spate of Clinton proposals to expand Medicare, child-care subsidies, education aid and other initiatives.

GOP leaders responded on one front Tuesday, unveiling a package of education reforms that would create as many as 30 pilot voucher programs allowing parents to send their children to private or parochial schools. The package also would let parents set up a $2,500-a-year savings account for each child, with the interest exempt from taxes if used for education-related purposes. Republicans also want to encourage the expansion of charter schools, new literacy initiatives and the testing of teachers, as well as merit pay programs.

Until Clinton seized the budget spotlight this month, Republicans had hoped to focus election-year debate on proposals to scrap the current tax code and replace it with a flat tax or consumption tax. Acknowledging that such broad changes are not likely to be adopted this year, Republicans are also pushing to cut taxes in the current code.

The framework for Archer’s thinking is his idea of reducing the overall federal tax burden as measured by its impact on the economy as a whole.

According to data compiled by the House Ways and Means Committee, the combined federal tax burden on businesses and individuals is now 19.9% of the gross domestic product--the highest level since World War II. Archer wants to set a target of 19%--probably to be phased in over a number of years--to “further protect Americans from big government.”

Even a single percentage-point reduction involves a huge amount of money in a $5-trillion economy. The amount of tax cuts required would depend on how quickly Congress decided to get to the 19% target. Archer suggested tax cuts of $200 billion over 10 years.

Among the specific tax cuts Archer is considering is a broadening of the 15% tax bracket, which now applies only to income up to $25,350 for single filers and $42,350 for couples filing jointly. He also is considering proposals to eliminate the marriage penalty, which forces some couples to pay more in taxes than they would if they filed as individuals.

In his speech, Gephardt revived a proposal to simplify the tax code by eliminating many loopholes and lowering rates. But unlike GOP proposals to impose a single-rate “flat tax,” Gephardt’s proposal would retain the code’s progressive rate structure, providing five tax brackets ranging from 10% to 34%.