Senate GOP Rolls Out Tax Cut Plan

Senate Republicans unveiled their tax cut package Friday as a rival to one crafted by House GOP leaders, setting the stage for the anticipated passage of a tax bill by Congress despite a threatened veto by President Clinton.

Sen. William V. Roth Jr. (R-Del.), chairman of the Senate Finance Committee, said that the package, which is somewhat less partisan than the House plan, was designed deliberately to attract the votes of Democrats.

But Senate Democrats offered a smaller, and far less costly, tax cut plan of their own, and the White House renewed its threats of a presidential veto if either of the GOP tax cut proposals is passed.

With both Republican tax cut plans now on the table, Washington is set to enter a period of frenetic activity on the issue. The Senate Finance Committee begins work Tuesday. The House will likely pass its tax cut measure Wednesday.

Ultimately, the Republicans are expected to approve a compromise bill before Congress takes its August recess, provoking the expected confrontation with the president.

The tax cut issue is important politically to both sides. Republicans regard their push for tax relief as a major political plus that will give them a decided edge over Democrats in the 2000 election.

Clinton has argued that the best use of the burgeoning budget surplus is to shore up Social Security and Medicare before enacting large tax cuts. Congressional Democrats generally agree, though many are reluctant to oppose all tax cuts outright.

Tax Cut for Lowest Income Bracket Urged

The Senate GOP proposal, elements of which had been made public previously, is centered on a modest reduction in the tax rate for the lowest income bracket, dropping it to 14% from 15%. The plan also would repeal the so-called marriage penalty that taxes many couples more than they would pay if the partners were single and filed separate returns.

The House bill, by contrast, would provide an across-the-board reduction of 10% in all tax brackets, a step that would skew more of the benefits to upper- and upper-middle-income taxpayers, who pay the bulk of the nation’s federal income taxes.

In other differences between the two bills, the Senate proposal does not cut the top individual tax on profits from the sale of stocks or other assets and it does not fully repeal the estate tax--both long-standing hot-button issues for many Republicans.

Roth was candid in conceding that at least part of the difference was his desire to attract Democratic votes in the more bipartisan Senate. “I was trying to put something together here that I thought would appeal across the aisle, as well as with my own Republicans.”

Both the White House and Senate Democrats, however, rejected the Roth proposal as too costly and aimed at the very wealthy. Roth estimated that his plan would drain $792 billion from federal revenues over the next 10 years, while the cost of the House bill is put at $863.9 billion.

Speaking at a middle school in Des Moines, Clinton warned that, before using up the budget surplus to provide tax relief, Congress should “save Social Security and Medicare.”

“It’s going to save everybody a lot more money in the long run than a tax cut,” he said.

Echoing the president’s criticism, Democrats on the Senate Finance Committee complained about the size of both the House and Senate Republican tax cut proposals, saying they would drain the entire budget surplus once Social Security money was protected, leaving no room to aid the Medicare fund.

“We run a real risk . . . of blowing [the surplus],” Sen. Max Baucus of Montana, one of the senior Democrats on the Finance Committee, told reporters at a briefing, “and we will blow it if we . . . succumb to the temptation of passing too great a tax cut.”

Baucus argued that too large a tax cut would “rattle the [financial] markets, probably push up interest rates and will, in effect, be a tax increase in the future.”

The plan offered by the Finance Committee’s Democrats would only drain $295 billion from federal revenues over the next 10 years. But its proponents conceded that the plan has little chance of passage in a Republican-controlled Congress.

Rather than cutting tax rates or reducing the rate in the lowest bracket, the plan would increase the standard deduction taken by all taxpayers, reduce the marriage penalty and speed already-passed reductions in the estate tax.

Clinton has proposed a similarly sized tax reduction plan aimed primarily at low- and middle-income taxpayers. Republicans already have dismissed the president’s proposal as inadequate.

Serious Talks Seen in Early October

Assuming, as most analysts do, that Clinton follows through on his veto threat--and that the Republicans will not be able to muster enough votes to override it--the two parties should begin serious negotiations on tax cuts in early October.

But the bargaining will be complicated by the fact that the loss of revenue resulting from any big tax cut bill has major implications for the budget picture, and the House is likely to be nearing the start of the new fiscal year, Oct. 1, in its usual frenzy over spending bills.

As a result, the negotiations over the tax cut issue are likely to be intertwined with talks over how to deal with major appropriation bills. All sides want to avoid the brouhaha of 1995-96, in which an impasse over spending measures resulted in a government shutdown.

Analysts predicted that there is room enough for compromise. For instance, both parties are backing measures that would provide breaks for medical care, education, savings and married taxpayers.