GOP, Democratic Lawmakers Jump on Tax Cut Bandwagon

Call it tax cut fever.

President Bush has yet to unveil his ambitious plan to reduce taxes by $1.6 trillion over the next decade, but already members of Congress are bidding up the price tag with ideas of their own.

Two top GOP leaders want to cut the tax on dividends and other capital gains, even though that is not in Bush’s plan. A bipartisan stampede by lawmakers in the House and Senate is pushing for expansion of tax-deferred individual retirement accounts. Business groups are leaning on Congress to do more than Bush proposes to help corporations. And just about every member of Congress has parochial tax-cut proposals to help home-state enterprises from timber to energy to education.

When Bush next week officially introduces the tax cut plan that was central to his presidential candidacy, it is clear he will do so in a far more hospitable economic and political environment than during the 2000 campaign.

Not long ago, even some Republicans were wondering whether Bush’s tax cut was too huge to fit into a balanced federal budget. But recent weeks have brought a spate of developments--from the encouraging words of Federal Reserve Board Chairman Alan Greenspan to a new bump-up in budget surplus projections. Tax cut proponents have been so heartened that their wish lists have begun to grow.

“There is a feeding frenzy at work in this town,” said Sen. Kent Conrad (D-N.D.).

With so many ideas flourishing on Capitol Hill, a key question has become whether they will be grafted onto Bush’s plan--and thus drive up its cost--or whether parts of his plan will be supplanted by lawmakers who often have more parochial concerns. Bush may find that he faces more of a leadership challenge reining in allies than winning converts to his tax-cutting cause.

Indeed, the debate likely will present Bush with an early lesson in an enduring principle of legislative politics: The president proposes and Congress, jampacked with ideas of its own, disposes.

Bush already has bowed to GOP leaders on legislative strategy. He had urged Congress to consider his plan as one package but this week acceded to the leaders’ insistence that they move the plan through the House, piece by piece.

On the merits, there is little daylight between Bush and congressional Republicans on the core planks of his tax plan. Provisions to phase out the estate tax and reduce taxes on couples who pay the so-called marriage penalty were passed by Congress last year by bipartisan margins but vetoed by President Clinton.

The biggest piece of Bush’s plan is the proposed cut in income tax rates, which includes dropping the lowest rate from 15% to 10% and the highest rate from 39.6% to 33%. There is growing support, even among Democrats, for the idea of a rate cut, although not necessarily as much as Bush wants--especially in the upper brackets.

“I have some sympathy for across-the-board cuts if they are weighted toward the middle class,” said Conrad.

Other elements of the Bush plan include an expansion of tax-deferred education savings accounts (a proposal that has passed Congress more than once in recent years, only to be vetoed by Clinton), an increase in tax credits for families with children and a permanent extension of a tax credit for research and development (another popular item on Capitol Hill).

Democrats Seek Different Approach

Previously, Democratic support ranged from lukewarm to nonexistent for anything other than narrowly focused tax cuts. Many of the party’s rank and file, for instance, voted for abolishing the estate tax because they knew Clinton would veto it. But as momentum has gathered for significant tax relief, Democrats have groped for a new strategy.

Democratic leaders, finding themselves on the defensive, have endorsed tax cuts that would total as much as $900 billion over 10 years--far more than they supported in the past. Still, they hope to focus the approaching debate on who should get a tax cut and continue to urge caution about the bottom line.

Some Republicans share that latter concern. Senate Finance Committee Chairman Charles E. Grassley of Iowa has warned that Bush may have to settle for less than the $1.6 trillion he wants because Congress is so narrowly divided.

But other tax cut enthusiasts say that the sky is the limit.

“I believe Congress should provide tax relief beyond the level currently being discussed,” said House Majority Leader Dick Armey (R-Texas). “If these surpluses stay in Washington, the money will be spent.”

Armey and Senate Majority Leader Trent Lott (R-Miss.) have advocated a capital gains tax cut--a GOP staple notable for its absence in Bush’s tax cut plan as he described it during the campaign.

Another candidate for early House action is a bill, which passed the House and Senate last year by wide margins but was vetoed by Clinton, that would raise the ceiling on contributions to individual retirement accounts. Although that proposal is not part of Bush’s tax plan, the White House is not expected to be hostile to it--especially since its principal sponsor is Rep. Rob Portman (R-Ohio), a leading Bush ally.

The IRA bill is just one of several tax cut measures approved by the House last year that are not part of the Bush plan. Others include repeal of the telephone excise tax, a reduction in Social Security taxes and a number of tax breaks for small businesses. If those were all approved in addition to the Bush tax plan, it would add about $500 billion to the tax cut tab over the next 10 years, according to calculations by the Democratic staff of the House Ways and Means Committee.

Growing Support to Cut Alternative Tax

Another initiative enjoying broad support in Congress is an effort to eliminate an anomaly in tax law that has forced growing numbers of middle-income people to pay higher taxes under the so-called alternative minimum tax. That alternative tax was established to keep wealthy taxpayers from eliminating all their tax liability through deductions and credits. But growing numbers of middle-income taxpayers have been hit by the tax because, in recent years, many of the new deductions and credits that became law were aimed at the middle class. These deductions and credits can become a double-edged sword by causing the minimum tax to kick in and, for some, result in a higher tax bill then otherwise would have been the case.

Limiting the effect of the alternative tax could cost as much as $200 billion over 10 years, by congressional estimates.

Congress is also likely to come under heavy pressure from lobbyists for big business, some of whom feel shortchanged by the Bush plan’s emphasis on tax cuts for individuals rather than for corporations. The Business Roundtable has sent a letter to Bush outlining its legislative agenda for the year--including proposals to reduce corporate tax rates.

“Our hope would be that there would be equity between individual and business tax cuts,” said Johanna Schneider, spokeswoman for the Business Roundtable. “If you are going to reduce individual rates, you should look at reducing the corporate rate too.”

As these various issues are thrashed out, lawmakers inevitably will bring their own pet proposals to the table to help their constituents and political supporters.

Rep. Jennifer Dunn (R-Wash.) is a big supporter of Bush’s effort to abolish the estate tax--but she also would love to see a cut in taxes on commercial shipping and an increase in a tax break for timber companies, both important to her district in western Washington state.

Sen. Don Nickles (R-Okla.) favors a tax cut to allow businesses to write off certain expenses more quickly--a measure that would help the oil industry, so important to his state, as well as other businesses.

Sen. Olympia J. Snowe (R-Maine) is hoping that the tax bill includes deductions for college tuition and student loan interest expenses.

Other examples are sure to surface as the tax cut debate gears up. “When it gets to Capitol Hill, there will be a bidding war,” said Mark Bloomfield, president of the American Council on Capital Formation, which lobbies for business interests.