Party Lines Apparent in Senate Tax Debate

The Senate opened debate Wednesday on the Republican-backed tax-cut plan with partisan lines sharply drawn, as lawmakers rejected a Democratic alternative more in line with what President Clinton wants.

Democrats scored a tactical victory when they forced Republicans to accept an unusual time limit on the proposed tax cuts, rather than making them permanent.

The GOP plan would slash taxes by $792 billion over the next decade through several means, such as eliminating the so-called marriage penalty that results in higher tax bills for many couples. But under the provision adopted Wednesday, the tax code would revert to its current form after 10 years.

The Republican plan calls for the largest tax cut since 1981, including a reduction in rates for people in the lowest income tax bracket. Clinton has vowed to veto the proposal, spurring Senate Democrats to push their proposal.

The Democratic plan, defeated 60 to 39, called for cuts totaling $250 billion over 10 years. Joining 54 Republicans in voting against it were six Democrats.

A vote on the GOP plan is likely Friday.

During Wednesday’s debate, both sides drew on testimony that Federal Reserve Chairman Alan Greenspan gave earlier in the day to a Senate committee.

Seemingly giving ammunition to Democrats, Greenspan said: “We probably would be better off holding off on a tax cut immediately, largely because it is apparent that the [federal budget] surpluses are doing a great deal of good to the economy.”

But Greenspan also said he would prefer a tax cut to using the surplus for more government spending, which is what Republicans say Democrats want to do.

Before debate began, Senate Minority Leader Tom Daschle (D-S.D.) held out little hope that Democrats would budge from their opening bargaining position. “There is absolutely no room for compromise on that tax cut--zero room,” he said.

At the White House, Clinton reiterated his demand that the bulk of the budget surplus be used to reduce the national debt and shore up the long-range finances of Social Security and Medicare. And he again promised to veto the large tax cut sought by Republicans.

Still, the Senate debate brought hints of bipartisanship absent when a similar bill was approved by the House last week.

Sen. John B. Breaux (D-La.) pleaded with the warring parties to search for a compromise that would avoid a veto. “There’s got to be some common ground,” he said.

As approved by the Senate Finance Committee, the GOP bill would cut from 15% to 14% the tax rate on the lowest tax bracket. It would reduce, but not eliminate, the inheritance tax. It would reduce taxes on married couples by allowing them to file jointly or as individuals, depending on which was more advantageous.

Republicans argued that taxpayers deserve to reap the benefits of burgeoning budget surpluses that the government projects over the next 10 years.

“American families, those who created the wealth in the first place . . . are rightly entitled to the revenues that they earned,” said Sen. William V. Roth Jr. (R-Del.), Finance Committee chairman.

Democrats argued that it was irresponsible to use most of the projected surplus on tax cuts, leaving less for other spending priorities, emergencies and reducing the national debt.

The Democratic tax-cut alternative would have provided about the same amount of tax relief as Clinton has proposed, but with a different focus.

Clinton’s plan would encourage retirement savings. The Senate Democratic plan called for an increase in the standard deduction and tax credits for families providing long-term care, as well as other provisions.

The victory Democrats scored by forcing the GOP bill to expire after 10 years stemmed from an obscure budget rule. The rule allows a parliamentary challenge to certain bills if they cost the government revenues after 10 years. In the case of the GOP tax cut, revenue losses are expected to jump to $2 trillion in 2009-2019--in part because many of the provisions do not take effect immediately.

Republicans, saying that the arcane budget rule was never meant to apply to a tax cut, tried to waive it. They fell far short of the 60 votes needed to win--51 senators voted for a waiver, 48 voted against. Three Republicans joined all of the Senate’s 45 Democrats to support the 10-year limit.

Senate Republicans may be able to drop the limit when they meet with the House to reconcile differences in their tax bills.

The tax cut plan passed by the House last week--while also calling for $792 billion in reductions over 10 years--would use different means to accomplish that goal. For instance, it would abolish the inheritance tax and cut all tax rates by 10%.

Times staff writer Edwin Chen contributed to this story.