GOP Begins Salvage Effort on Part of Vetoed Tax Cut

Congressional Republicans began efforts Friday to salvage a small part of the tax cut bill that President Clinton vetoed this week, drafting legislation to renew some existing tax breaks that otherwise would expire.

But a key aspect of the measure ran into immediate opposition from congressional Democrats and administration officials.

On a party-line vote, the House Ways and Means Committee approved bare-bones legislation that would continue to protect tax breaks for middle-income families--such as the $500-a-child tax credit--from being nullified by a levy imposed primarily on wealthy people.

Tax experts said that, if the exemptions are not extended, the child credit and some half-dozen other popular middle-income tax breaks effectively would be erased, including existing tax credits for adoption, home mortgage interest and dependent care.

The panel also voted to extend an expiring tax credit designed to encourage business to step up research and development--considered a key to keeping America competitive. And it approved a measure to continue a tax credit aimed at encouraging firms to hire former welfare recipients.

Administration officials have favored extending the expired tax credits, but they balked at GOP plans to mitigate the bill’s effect on the fiscal 2000 budget by deferring the research and development credit until Oct. 1, 2001.

Republicans also have used a similar ploy in appropriations bills in an effort to keep their spending within budgetary limits.

Rep. Robert T. Matsui (D-Sacramento), a senior Democrat on the panel, said there is “no question” that the tax break bill as currently drafted will be vetoed. “We all like the R&D; credit, but if it’s not going to be paid for, we’re opposed to the bill.”

The terms under which the research and development tax credit would be extended are complex. Although the credit would be renewed retroactively to its July 1, 1999, expiration date, firms could not actually claim it on their returns until Oct. 1, 2000--the start of fiscal 2001.

Congressional tax-writers insisted that businesses eventually would be able to recoup the entire credit but conceded that in the interim it would be tantamount to the companies’ making interest-free loans to the treasury.

GOP strategists said that they expect no other attempts to revive parts of the sweeping 10-year, $792-billion tax-cut bill that Clinton vetoed Thursday. Although Clinton has expressed a willingness to back tax cuts of about $300 billion, many Republican lawmakers appear satisfied to be able to charge Clinton with blocking the GOP legislation.

Administration officials said that Clinton’s opposition to Friday’s legislation is based on the same rationale that he had cited in vetoing the broader tax relief bill: that it would eat away at the surplus he says is better used to bolster the Social Security system and further reduce the national debt.

There are other uncertainties surrounding the new bill. Panel leaders said that they had no idea whether House leaders would schedule it for floor action any time soon, and the Senate Finance Committee appeared in no hurry to approve companion legislation.

Senate Majority Leader Trent Lott (R-Miss.) said he fears that bringing such a measure to the floor would only invite lawmakers to expand it into another omnibus tax bill. He said he prefers simply to include the provisions in any catch-all spending bill Congress approves.

Republicans said that they acted so quickly--the day after Clinton vetoed the larger tax-cut bill--because the Internal Revenue Service needs to know by Oct. 7 if the expiring provisions would be extended so that it can print its 1999 tax return forms in time for distribution to taxpayers.

Democrats on the Ways and Means Committee sought to push through their own version of the bill that also would have renewed tax credits for education and the use of alternative energy sources--to be paid for by ending some tax breaks for corporations. But Republicans defeated that effort, 23 to 14.