Congress OKs Sweeping Tax Cut Bill

The Republican-controlled Congress brashly defied a veto threat Thursday and gave final approval to a 10-year, $792-billion tax cut--a bill that may never become law but will serve as an anti-tax manifesto for the party as it heads into the 2000 campaign.

The measure would cut income tax rates by one percentage point, phase out the inheritance tax, slash the tax on investment profits, ease the so-called “marriage penalty” and provide a panoply of tax breaks to help families with the costs of education, retirement and health care.

The bill passed the Senate on a razor-thin 50-49 vote, with approval coming after GOP leaders prevailed on wavering Republican moderates to back the legislation. The moderates have been reluctant supporters of the bill all along, concerned that the proposed tax cut would be too big and too favorable to the wealthy.

In the end, four Republicans joined all 45 Senate Democrats--including California Sens. Barbara Boxer and Dianne Feinstein--in opposing the bill. One Republican supporter of the bill was absent. Earlier Thursday, the House approved the bill on a 221-206 vote, largely along party lines. Only four Republicans voted against the bill while five Democrats voted for it, including the sole Californian to cross party lines, Rep. Gary A. Condit (D-Ceres).

Final passage of the bill--a blend of versions that the House and Senate approved in late July--sets the stage for a summer of rhetorical battles over the key questions now facing Congress: What is the best use of the projected budget surplus? Who should benefit from any reduction in taxes? And, even more broadly, how big should the federal government be?

Republicans plan to spend the next month, while Congress is in recess, touting the tax cut as the heart of their answer to those questions. They maintain that the sweeping reductions are needed to prevent politicians from spending the surplus, to keep the government from growing and to send the money back where it belongs, to taxpayers’ pockets.

“There is a dramatic difference between Republicans and Democrats in this capital city, and this is the dividing line,” said House Ways and Means Chairman Bill Archer (R-Texas).

Senate Finance Committee Chairman William V. Roth Jr. (R-Del.) said: “The fundamental question before Congress . . . is quite simple: Is it right for Washington to take from the taxpayer more money than is necessary to run the government?”

But President Clinton traveled to Capitol Hill on Thursday to reiterate his opposition to the GOP bill and repeat his call for using the projected surplus first to shore up critical federal programs such as Medicare and Social Security. But he left open the door to compromise with the GOP later this year.

“This is a remarkable moment in history,” Clinton said. “We can’t take advantage of it if we don’t work with the Republicans. . . . We have worked with you before and we will again.”

However, no compromise can emerge any time soon because Republicans will not send the bill to Clinton until September. GOP leaders do not want Clinton to be able to veto it in August while Congress is in recess and Republicans are not in a good position to respond.

And although Clinton held out the prospect of a deal, some GOP leaders suggested that they would rather have no tax cut than compromise with Clinton after the veto.

“I’m always for getting something done,” said Senate Majority Leader Trent Lott (R-Miss.). “But sometimes inaction is better than the wrong action.”

Other Republicans want a less confrontational approach. That was part of the reason final passage of the bill was in doubt in the Senate, as a handful of moderate Republicans questioned their leadership’s decision to press on with the GOP bill.

Sen. Olympia J. Snowe (R-Maine) was among them. “Pushing something through now to a certain veto may well not be the most constructive way to get a tax cut,” said Snowe spokesman Dave Lackey.

She joined Republican Sens. Arlen Specter of Pennsylvania, George Voinovich of Ohio and Susan Collins, also of Maine, in voting against the measure.

In both the House and Senate, Democrats derided the GOP tax cut plan as an empty political exercise designed to curry favor with core Republican voters.

“It’s not a bill,” said Rep. Charles B. Rangel (D-N.Y.). “It’s a piece of campaign literature.”

Indeed, the bill includes quirky elements that some see as a sign that no one expected it to become law. For example, because of an arcane Senate procedural rule, the bill’s major elements would lapse in 2008.

The measure’s specifics, which rather than become law more likely will form the basis of future negotiations with Clinton, include:

* Shaving one percentage point from tax rates for each income bracket, and allowing more people to qualify for the lowest bracket.

* Easing the marriage penalty by increasing the standard deduction for joint filers to make it double the amount allowed for single people.

* Cutting capital gains taxes, which individuals pay on profits from the sale of assets, to 18% from the current 20%.

* Eliminating inheritance taxes by 2009.

* Increasing the limits on annual contributions to individual retirement accounts to $5,000 from the current $2,000.

The bill also contains a hodgepodge of special interest provisions that were pushed by powerful lobbies and lawmakers.

In a bow to the restaurant lobby, the measure would increase the deduction for business meals from 50% to 60% of the check--a modest comeback for the infamous “three-martini-lunch” subsidy. In a provision dear to the high-technology industry, the bill would extend for five years a tax credit for research and development expenses.

The bill provides a credit for energy produced from chicken waste. And in a testament to the influence of House Speaker J. Dennis Hastert (R-Ill.), a tax break was approved for manufacturers of fishing tackle boxes--a major maker of which resides in Hastert’s district.

Commenting on these and similar provisions, one Democratic aide joked: “The kitchen sink lobby is very upset. That’s the only thing that has been left out of the bill.”

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Times staff writer Richard Simon contributed to this story.