House GOP Puts Down Revolt on Tax Cut Plan

House Republican leaders quelled a rebellion in their ranks and united their fractious party behind the biggest tax cut bill in 18 years Wednesday night, apparently paving the way for the House to pass the bill today.

The bill, which would provide $792 billion in tax reductions spread over the next decade, had faced a solid wall of opposition from Democrats, a veto threat from President Clinton and, most perilously, strong resistance from a rebellious group of moderate Republicans worried that the tax cut was recklessly large.

But after hours of arm-twisting and negotiating over provisions in the legislation, GOP leaders appeared to have won over enough votes from Republican moderates to pass the measure. A key new provision sought by the moderates would prevent part of the tax cut from taking effect if progress is not made in reducing the national debt, the money and interest the government owes from years of deficit spending.

“My sense is that the bill passes because of this provision,” said Rep. Fred Upton (R-Mich.), a leading moderate.

Preliminary debate on the bill began late Wednesday night, but the final vote is not scheduled until today. The bill cleared its first hurdle just after midnight, when the House approved, 219 to 208, a procedural measure that will bring the bill to the floor today.

The House bill would cut income tax rates by 10% by 2009, slash capital gains taxes, phase out inheritance taxes, ease the tax burden on married couples and provide an array of other tax breaks for education and health care expenses.

The bill also includes a tax break that would subsidize the cost of prescription drugs for the elderly, a proposal designed to counter Clinton’s plan for a new drug benefit for Medicare beneficiaries.

“It serves the family from cradle to grave,” House Majority Leader Dick Armey (R-Texas) said of the GOP proposal.

The bill, calling for the most sweeping tax cut since President Reagan’s first year in office in 1981, is the cornerstone of the GOP agenda. And the vote on it loomed as a major leadership test for House Speaker J. Dennis Hastert (R-Ill.), who worked with his lieutenants throughout the day to persuade GOP renegades and fence-sitters to support the bill.

The scramble laid bare divisions within the GOP as it grapples with the crucial question of what to do with the federal budget surplus that is beginning to accrue for the first time in a generation.

The House bill would use most of the surplus for tax relief, a plan that Clinton has blasted as fiscally irresponsible. He repeated his criticism at a televised news conference Wednesday, saying that the measure would hamper efforts to solve the future financial needs of the Social Security and Medicare programs.

“If Congress passes the wrong kind [of tax cut], of course I will not sign it,” Clinton said. “I will not allow a risky plan to become law.”

But Clinton, who has proposed $250 billion in tax cuts, also indicated some willingness to negotiate with Republicans. “We’re not debating about whether to have tax cuts or not,” he said. “We should have tax cuts but tax cuts that . . . we can afford, not ones that would demand drastic cuts.”

In the Senate, meanwhile, the Finance Committee on Wednesday approved a bill that, though its details vary from the House proposal, also would provide $792 billion in tax cuts. The committee vote favoring the bill was 13 to 7, with two Democrats--Sens. Bob Kerrey of Nebraska and John B. Breaux of Louisiana--joining Republicans in voting for it.

That element of bipartisanship was virtually absent in the House, where Democrats were overwhelmingly opposed to the GOP tax cut. They argue that the bill squanders surplus money that could be used to shore up Medicare and Social Security, and that it would benefit mostly the wealthy.

“It’s going to be the nail in the coffin that will deny [Republicans] the [House] majority in the year 2000,” Rep. Charles B. Rangel (D-N.Y.) said Wednesday night.

Hastert’s main challenge Wednesday was to bridge divisions within his own party between moderates who believe the proposed tax cut would be too big and conservatives who think it would be too small.

“Denny Hastert is on a tightrope across the Grand Canyon,” said Rep. Mark Foley (R-Fla.). “Regrettably, both sides of the spectrum of our party are pulling in different directions and there is a gulf between them.”

The House bill would return to taxpayers virtually all of the $1 trillion in surplus that government officials have projected will be available over the next 10 years for things other than Social Security. Republicans argued that the surplus amounts to an overpayment by taxpayers and thus should be refunded through the tax cuts. They also view slashing taxes as a tool for limiting growth of government in a time of a burgeoning surplus.

“We are giving the American people the opportunity to take more money home and put it in their pockets instead of putting it in bureaucracies,” Hastert said.

Debate on the bill was delayed throughout the day as GOP leaders worked to address complaints about the measure from both wings of the party.

Many conservatives complained that the bill would only reduce, not eliminate, the so-called marriage penalty, a quirk in the tax code in which married couples pay more income tax than they would if they were single, filing separately. Christian activists and other social conservatives have been clamoring to wipe out the marriage penalty entirely.

Moderates, on the other hand, objected to the use of almost all the projected surplus for tax cuts. They argued that more of the money should be used to pay down the national debt, to increase domestic spending and to provide a margin for error should the surplus be smaller than expected.

Some of the moderates also complained that it is politically risky to support a big tax cut when the strict spending caps adopted as part of the balanced-budget accord two years ago are forcing cuts in sensitive social programs.

Overall, enough moderates were threatening to vote against the bill early in the day that GOP leaders acknowledged they did not have the votes to pass it.

With Republicans numbering 222 in the House and controlling it by only a small margin, and with Democrats expected to stand virtually united against the bill, GOP leaders were forced to look almost solely to their own party to find the 218 votes needed to pass the bill.

In a series of private meetings Wednesday, the House leaders urged dissidents to put aside their reservations and support the bill as just the opening gambit in months of legislative maneuvering on the tax cut issue.

To conservatives who criticized the bill for not doing more to reduce the marriage penalty, the leaders stressed that they would seek to expand the tax break in negotiations with the Senate.

To moderates who thought the overall tax cut would be too big, the leaders predicted that the price tag would surely drop in talks with the White House.

The major concession by Hastert and his lieutenants was to pledge that the phase-in of the 10% across-the-board cut in income tax rates would be made conditional on reducing the national debt, currently estimated at $3.6 trillion.

Under this plan, the phase-in would not take effect in any year when the national debt did not decline. That change swayed a significant number of the moderates.

Commenting on the negotiation process, Armey said: “You always know how many horses are in the herd. The only question is how long it takes to get them into the barn.”

Times staff writers Edwin Chen and Stephen Fuzesi contributed to this story.

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Tax Cut Plan

Highlights of the House Republican tax cut plan.

*10% across-the-board reduction in tax rates, phased in over 10 years, coupled with a commitment to work toward reducing the nation’s debt.

*Reduce the so-called marriage penalty by increasing the standard deduction for couples enough to eliminate inequities in the treatment of single and joint filers.

*Cut the maximum tax rate to 15% from 20% on net proceeds from capital gains on investments held more than one year.

*Phase out estate taxes, for which current rates run as high as 55%.

*Allow individuals purchasing their own health or long-term disability insurance to fully deduct the premiums.

*Overall effect: reduce taxes by $792 billion over 10 years.

Source: Times Washington Bureau