GOP Nears an Accord on Plan to Lower Taxes

Congressional Republicans neared agreement Tuesday on a compromise $792-billion tax cut plan that would phase out inheritance taxes and provide about $100 billion in relief to ease the so called marriage penalty over the next 10 years, GOP sources said.

The emerging compromise bill, which would reconcile differences between disparate versions passed earlier by the House and Senate, also would shave 1 percentage point off tax rates in every income bracket and cut capital gains for individuals but not corporations.

The bill faces a veto threat from President Clinton. What’s more, the changes made may jeopardize support from the centrist swing votes--moderate Republicans and conservative Democrats--who were key to passage of the bill in the narrowly divided House and Senate.

Centrists in the Senate, in particular, complained that the negotiators seemed to be moving too far in the direction of the House bill, which channeled a larger share of the bill’s benefits to upper-income people.

“What we’re headed for is the potential for a [compromise bill] that is not going to be able to pass the Senate,” said Sen. John B. Breaux of Louisiana, one of four Democrats who backed the Senate measure, which passed last week, 57 to 43. “Many of us--myself included--would not be in a position to support it.”

Despite the differing details between the House and Senate bills, both agreed on the bottom line for tax cuts--$792 billion over a 10-year period. GOP leaders contend that with the non-Social Security budget surplus projected to grow to $1 trillion during the next decade, taxpayers deserve the sweeping cuts.

But Clinton, who has proposed tax cuts in the range of $250 billion to $295 billion, has relentlessly attacked the Republican plan as reckless use of the projected surplus. The GOP proposal, he said, would hinder efforts to reform Medicare, improve other social programs and reduce the national debt.

GOP leaders were pushing to settle differences between the House and Senate versions and pass the compromise bill before the end of the week so the party could present a united front on the issue as lawmakers head home for a month-long summer recess.

Republicans hope to use the time in their home states to tout their tax cut to voters and build political pressure on Clinton to sign it after Congress sends it to him in September.

But if, as expected, Clinton carries out his veto threat, the party is divided about its post-veto strategy. Some Republicans want to stand pat at that point and use the impasse as an campaign issue in 2000. Others want to seek a post-veto compromise with Clinton.

“There’s very much a split opinion,” said Rep. Jennifer Dunn of Washington, a member of the GOP leadership. “For myself, I want to keep this tax bill strong. I don’t want to back down.”

Differences between the two tax-cut bills were being worked out in negotiations by a tiny group headed by Senate Majority Leader Trent Lott (R-Miss.), House Majority Leader Dick Armey (R-Texas) and the chairmen of the House and Senate tax-writing committees, Rep. Bill Archer (R-Texas) and Sen. William V. Roth Jr. (R-Del.).

Sources stressed that details provided of their agreements were tentative until a complete deal has been reached, and negotiators labored into the night to iron out the differences. But Republicans close to the talks said there had been general agreement about several important areas of the bill.

The House bill would have cut all tax rates 10% over the next 10 years. The Senate bill would have trimmed from 15% to 14% the rate on the lowest tax bracket--an effort to keep tax relief targeted on middle-income people.

GOP sources said that the compromise would shave 1% off each of the four tax rates that apply to different levels of income. So, for example, the 15% bracket at the bottom would drop to 14%, and the top rate of 39.6% would drop to 38.6%.

The compromise also is expected to provide about $100 billion in relief for the marriage penalty--more than the House bill but less than the Senate had provided to address a quirk in the tax code that forces many married couples to pay more in taxes when they file jointly than if they filed separate returns.

The compromise approach to easing the marriage penalty is a combination of the different approaches used by the House and Senate. Like the House bill, the compromise would increase the standard deduction for married couples to make it twice the amount allowed for single filers.

But that alone was considered inadequate by many Republicans, especially religious conservatives who have made eliminating the marriage penalty their top priority.

To provide more relief for couples, the emerging compromise would allow more couples to qualify for the lowest tax bracket by raising the threshold at which they start paying the 28% rate--and make that threshold twice the amount of the cutoff for single individuals.

In another major area, the compromise would cut capital gains taxes, which apply to profits from the sale of stocks, property and other assets. The House bill cut both individual and corporate taxes on capital gains. The Senate bill would not cut either rate but would exempt from taxation $1,000 of capital gains.

Although the details were in flux, the compromise was expected to cut the top rate on individual capital gains to 18% from 20%, leave corporate rates unchanged and provide the $1,000 exclusion.

The House had proposed eliminating the inheritance tax gradually over the next 10 years. The Senate proposed cutting but not eliminating it. The compromise calls for complete elimination over 10 years. However, an arcane Senate budget rule would cause the entire bill to lapse after 10 years.

Republicans indicated that the compromise would include a version of a “trigger” mechanism included in the House bill that would make income tax rate cuts contingent on continuing progress toward reducing the national debt.

That provision was key to winning the support of a handful of moderate Republicans who had threatened to kill the bill in the House. Rep. Fred Upton of Michigan and 28 other House Republicans sent a letter to the House-Senate negotiators saying that “it would be very difficult for us to support” the compromise bill without the trigger mechanism.

The House version of the tax cut won approval July 22 in a 223-to-208 vote.

Even as the Republican leaders worked to resolve the differences between the two bills, one Democrat scoffed at their efforts.

“It’s like having two Christmas lists and you select the best from each list knowing that Santa is not coming,” said Rep. Charles B. Rangel of New York, referring to Clinton’s promised veto.