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Senate OKs GOP Tax Cut Bill; Veto Threatened

TIMES STAFF WRITERS

The Senate approved its version of the Republican bid for a $792-billion tax cut Friday, pushing the GOP-controlled Congress another step closer to a major confrontation with President Clinton on how to use the emerging federal budget surplus.

The bill, passed on a largely party-line vote of 57 to 43, would substantially reduce the taxes Americans pay on their income, inheritances and investments. It also would end the so-called marriage penalty that causes some couples who file jointly to pay more than if they filled as single individuals.

The reductions would be phased in over 10 years, with many of the benefits not taking full effect until late in that period.

The measure now goes to a House-Senate conference committee, which will seek a compromise between the Senate bill and a House proposal. The House measure, passed last week, also calls for $792 billion in tax cuts over the next decade and targets many of the same beneficiaries, but it provides more tax relief to upper-income taxpayers.

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Clinton repeatedly has vowed to veto the bill that emerges from the conference negotiations, calling it reckless to use most of the projected budget surplus for tax cuts. Republican leaders said Friday that they expect the conference committee to finish its work Tuesday, in time for both houses to approve a compromise bill by next week’s end.

That would allow GOP lawmakers to talk up the measure during Capitol Hill’s monthlong recess, which begins Aug. 7. But Republicans plan to avoid immediately sending the bill to the president, for fear that he would veto it while the lawmakers are out of town and unable to respond.

The veto is expected to trigger intensive negotiations between the White House and Congress on a broad array of issues, including how much of the surplus to set aside for Social Security and Medicare.

Approval of the Senate bill followed a day of back-to-back votes on more than 18 amendments, including a last-ditch attempt by Democrats to kill the tax cut entirely and use the surplus to pay off the national debt. That provision was tabled on a vote of 65 to 35.

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The only major amendment to pass was a proposal to start the phaseout of the marriage penalty in 2001, rather than 2006. The vote on that was 98 to 2.

Sens. Dianne Feinstein and Barbara Boxer, both California Democrats, voted against the overall measure.

In all, four Democrats crossed party lines to support the tax cut bill, while two Republicans opposed it.

The Democrats voting for the bill were John B. Breaux of Louisiana, Bob Kerrey of Nebraska, Mary Landrieu of Louisiana and Robert G. Torricelli of New Jersey. The Republicans voting against it were Arlen Specter of Pennsylvania and George Voinovich of Ohio.

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The push for a major tax cut has been the key element in the Republican agenda this year, even though polls suggest that voters may not share the GOP’s enthusiasm for reducing the tax burden.

Even before the final Senate vote Friday, House and Senate leaders met to map strategy, both for settling their differences in the conference committee and promoting the Republican-crafted measure when members go back to their districts for the recess.

Senate Majority Leader Trent Lott (R-Miss.) framed the issue as a simple one: With the non-Social Security-related surplus projected to grow to as much as $1 trillion in the next decade, Republicans want to return it “to the people who earned it.”

He added: “We want to cut taxes, and the president wants to spend it. That’s what the fighting is all about.”

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During debate on the bill, Sen. William V. Roth Jr. (R-Del.), chairman of the Senate Finance Committee and author of the measure, brushed aside contentions from Democrats that the tax reduction should be delayed so the government can pay off the national debt.

The tax cut, he said, “should be now.”

But Democrats pressed their case, arguing that the forecasts by White House and congressional budget-makers for a sustained budget surplus are tenuous and that the excess revenue should be used for debt-reduction and spending increases in domestic programs.

“This is a bright-line test,” Sen. Byron L. Dorgan (D-N.D.) told the Senate. “There is a radical difference in terms of what we [Democrats] stand for and what we fight for.”

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Although the Senate and House tax cut bills are similar in size and scope, they reflect some sharply different approaches to providing tax relief. Some of the major issues that have to be resolved in conference:

* Broad-based income tax cuts. The House bill would provide a phased-in 10% cut in all income tax rates, a provision that would have the most effect on the affluent, since they pay the most taxes. The Senate bill would cut the 15% tax rate for the lowest tax bracket to 14%. It also would expand the threshold for people included in this bracket. Some Republicans argue that the Senate approach is less vulnerable to political attacks that the party’s policies are skewed to the wealthy. But conservative Republicans prefer the 10% cut, saying that benefits of the surplus should be shared by all taxpayers.

Lott predicted Friday that the Senate would accept the House provision. “It’s the fairest” because it affects all brackets, he said.

* Inheritance taxes. The House bill would gradually eliminate the estate tax, which imposes a levy on inheritances and gifts worth more than $650,000. The Senate bill would reduce the rate and raise the threshold on what is taxed but leave the basic tax in place. This issue is particularly important to two key Republican constituencies: small businesses and farmers. They argue that the tax is so high that many heirs are forced to sell family-owned businesses and farms to pay it.

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* Capital gains. The House bill would cut to 15% from 20% the top tax rate individuals pay on profits from the sale of stocks, property or other assets. This issue is a continuing rallying cry for conservative Republicans, who maintain that cutting the tax spurs economic growth. But the Senate bill would leave the capital gains tax virtually unchanged. The measure’s backers note that this tax rate was cut as recently as 1997 and argue that other tax breaks should be a higher priority.

* Marriage penalty. The Senate bill would eliminate the marriage penalty by allowing married couples to choose to file jointly or separately, depending on which way is more advantageous. The House bill would make a more modest reduction in taxes on couples, providing an increase in their standard deduction. This issue is a priority with conservative pro-family groups, which extracted a promise from House Republicans that they would move toward the Senate version in conference.

Both bills include provisions to provide new incentives for expenses relating to health care, education and retirement savings, with the details varying.

The conferees also will have to cut through a thicket of special-interest provisions. For example, the House bill, but not the Senate version, includes a special break for makers of fishing tackle boxes--a major manufacturer of which resides in the district of House Speaker J. Dennis Hastert (R-Ill.).

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And the Senate bill, but not the House version, includes several items benefiting Alaska, whose two senators wield considerable clout in the chamber. One provision provides a special tax deduction for whaling ship captains.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Who Benefits Most?

Among the key differences between the $792 -billion tax cut bills the House and Senate have passed is how the tax breaks would be distribute among income groups. Although both measures would mostly affect higher-income Americans, the Senate version has more benefits for other income groups.

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Family Income

Less than $16,426

Distribution of Tax Cuts: House: 0.3%

Distribution of Tax Cuts: Senate: 0.3%

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$16,426 to $30,963

Distribution of Tax Cuts: House: 1.7%

Distribution of Tax Cuts: Senate: 2.6%

$30,964 to $49,861

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Distribution of Tax Cuts: House: 5.2%

Distribution of Tax Cuts: Senate: 9.1%

$49,862 to $81,966

Distribution of Tax Cuts: House: 13.2%

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Distribution of Tax Cuts: Senate: 20.9%

$81,967 and up

Distribution of Tax Cuts: House: 79.6%

Distribution of Tax Cuts: Senate: 67.0%

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For the Wealthiest Families. . .

Top 10% ($115, 239 and up)

Distribution of Tax Cuts: House: 65.6%

Distribution of Tax Cuts: Senate: 44.8%

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Top 5% ($154,900 and up)

Distribution of Tax Cuts: House: 54.7%

Distribution of Tax Cuts: Senate: 29.9%

Top 1% ($346,555 and up)

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Distribution of Tax Cuts: House: 32.8%

Distribution of Tax Cuts: Senate: 11.1%

Source: Department of Treasury


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