House OKs Tax Cut Plan, Giving Bush Big Victory

The House on Thursday approved an across-the-board cut in income tax rates, handing President Bush his first big legislative victory on a signature campaign issue.

But the measure now faces a far rougher road in the Senate, where members of both parties say there are not yet enough votes to pass Bush’s plan.

The 230-198 vote in the House split deeply along party lines, with only 10 Democrats joining a unanimous GOP bloc in voting for the centerpiece of the president’s $1.6-trillion tax cut proposal.

Bush hailed the House action at the first stop on his latest trip aimed at swelling public support for his plan. “The American people had a victory today. The American family had a victory today. The American entrepreneur had a victory today,” he told a cheering crowd in Fargo, N.D.

Bush added: “One House down and now the Senate to go.”

The tax measure was whisked to the House floor by Republicans after scant committee review. But despite the partisan cast to the House vote and the uncertain outlook in the Senate, prospects remain bright for a major tax cut being enacted this year. What is in doubt are its size and scope.

“Democrats and Republicans alike are talking about the importance of reducing the tax burden on working Americans,” said Rep. David Dreier (R-San Dimas).

The bill the House passed would gradually slash all federal income tax rates by 2006--beginning with a cut in the lowest tax rate for the 2001 tax year that would provide a reduction of as much as $180 for individual taxpayers and $360 for married couples. Changes could appear in paycheck withholding taxes as early as this summer, if Congress meets the GOP leadership’s target of enacting the tax cut by July.

“Today we offer the heart of President Bush’s tax plan,” House Ways and Means Committee Chairman William M. Thomas (R-Bakersfield) said of the bill. “Mr. and Mrs. America: Help is on the way.”

Once taking full effect, the cut in tax rates would shrink federal revenue by $958 billion by 2011. The tax rate measure is just the first of a series of bills that Republicans hope to move through Congress over the next few months that would enact the entire Bush tax plan. Other pieces include repeal of the estate tax, expansion of deductions for charitable contributions and tax cuts for married couples.

GOP House leaders gave an early push to the tax rate measure because, they said, such cuts would provide an immediate boost to the flagging economy.

But infuriated Democrats said the fast-track debate amounted to a bum’s rush that belied Bush’s campaign promise to be a “uniter not a divider.”

“Bipartisanship is over,” House Minority Leader Richard A. Gephardt (D-Mo.) said as Thursday’s vote neared. “This is a continuation of a ‘my way or the highway’ leadership. George Bush has not changed the climate in Washington.”

The partisan nature of the House vote was reflected within the California delegation--the only member to cross party lines was Rep. Gary A. Condit of Ceres, who was among the 10 Democrats voting for the bill.

Before the final vote, the House rejected a Democratic alternative that would have cut taxes by half as much as the Republican measure.

Democrats will wield far more clout in the tax debate in the Senate, which is evenly divided between the two parties. Further complicating the political equation for Bush is that even some moderate Republican senators are saying his plan will have to be scaled back and reshaped to pass.

“It may be March madness in the House, but it’s certainly no slam dunk in the Senate,” said Sen. Max Baucus of Montana, senior Democrat on the Senate Finance Committee, which handles tax legislation.

The bill the House approved would cut and consolidate existing tax rates. The current structure imposes rates of 15%, 28%, 31%, 36% and 39.6% on progressively higher incomes. When fully implemented in 2006, the new rates would be 10%, 15%, 25% and 33%.

Although most of the rates would not begin to drop until 2002, the exception is the provision that sets a new rate for the first $6,000 of income single taxpayers earn and the first $12,000 earned by married couples. The rate on that bracket would drop from 15% now to 12% in 2001, and to 10% in 2006.

Republicans said the bill would provide a needed infusion of cash to consumers at a time when the economy is slowing. And even if the economy were booming, they argued, revenues should be returned to taxpayers because the federal budget surplus is expected to reach a record $5.6 trillion over the next 10 years.

“We need to get that money out of Washington and into the pockets of the American people and we need to do it as soon as possible,” said House Majority Leader Dick Armey (R-Texas). “This tax relief is the least we can do.”

House Democrats argued that it is fiscally irresponsible for Congress to pass a big tax cut before it enacts a comprehensive budget that would weigh the demand for tax reduction against competing claims on the surplus--including efforts to reduce the national debt, reform Social Security and Medicare and spend more on education.

The Democrats pointed to public opinion polls that have shown that voters care more about those priorities than about cutting taxes. They also cited the close vote in the presidential election as evidence that Bush has no mandate for such a sweeping tax cut plan.

“The majority of people did not vote for this irresponsible action in Congress,” said Rep. Corrine Brown (D-Fla.), referring to Democrat Al Gore’s victory over Bush of the popular vote.

Democrats also argued that Bush’s tax cut plan was flawed because it would provide too much of a benefit to the wealthy. They cited analyses showing that, of the $1.6 trillion in tax relief Bush has proposed, 43% would flow to the richest 1% of taxpayers.

The administration responded to such complaints by analyzing the bill another way, showing that lower-income taxpayers would see their tax bills cut by the largest percentages. According to the Treasury Department, under the Bush plan people making $30,000 to $40,000 a year would have their federal income taxes cut by an average of 38.3%; people making more than $200,000, by contrast, would see their taxes cut 8.7%.

Attention now turns to the Senate, where the momentum that sent the bill sailing through the House is expected to dissipate quickly.

“Tax legislation is like a river,” said Senate Finance Committee Chairman Charles E. Grassley (R-Iowa). “In the House of Representatives, the river starts out high in the mountain, very swift-flowing, somewhat rough, you might say, but moving very quickly. Well, as it reaches the Senate, we’re downstream quite a bit. The river moves a lot slower and a lot calmer.”

The next step, probably in early April, will be a Senate vote on a budget resolution that sets tax and spending targets for the federal government. The key question is whether the Senate will pass a budget that takes into account the full $1.6-trillion tax cut Bush wants. Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) has said the votes to do that are not yet in hand.

Once a budget is approved, Senate GOP leaders plan to consider the tax cut as a single package, eschewing the House’s piecemeal approach.

Just getting the bill out of the Finance Committee may prove a chore: The panel is evenly divided between the parties and already one Republican committee member--Sen. James M. Jeffords of Vermont--has said he could not support the size of Bush’s proposal.

Jeffords and other Republican moderates say they are uneasy about approving such a big tax cut based on surplus projections that may not materialize. They argue that Bush’s $1.6-trillion target would be more palatable if it were linked to a “trigger” mechanism that would delay later stages of the tax cut if surpluses come in smaller than expected.

Bush and other tax cut advocates are trying to lean on senators on both sides of the aisle. The Club for Growth, a political group that supports a tax cut even larger than Bush’s, is airing an ad on cable television stations nationwide to gin up public pressure for tax reduction. Earlier this year another GOP group, the Republican Leadership Council, ran pro-tax-cut television ads in Montana and North Dakota--states that went heavily for Bush in the presidential vote but which are home to three Democratic senators.

Bush, in his Thursday stop in North Dakota, directly targeted the state’s two Democratic senators, Kent Conrad and Byron L. Dorgan. Addressing an audience that filled the North Dakota State University sports arena, Bush urged his listeners to use e-mails, telephone calls and letters to put pressure on the pair to back his tax cut plan.

Seemingly pumped up by his first major legislative victory, Bush spoke for 28 minutes--twice the length of the speeches he generally has been giving in his travels to promote his proposal. Today Bush will speak in two states--South Dakota and Louisiana--where Democratic senators may face difficult reelection campaigns in 2002.

*

Times staff writer James Gerstenzang contributed to this story from North Dakota.

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Tax Savings by Income

The bill passed Thursday by the House would gradually reduce income tax rates across the board, starting with the 2001 tax year and taking full effect for the 2006 tax year. Here are examples of how it would affect a range of taxpayers. The tax figure for 2006 assumes that White House proposals to double the $500 per child tax credit and reduce the marriage penalty also would be in effect.

*

N/A reflects no taxes are due.

* Figures reflect the savings in 2001 if the Bush plan had been fully in effect. Bush is asking to phase in his plan over the next five years.

** Savings reflect the second-earner deduction, Bush’s version of marriage penalty relief.

Source: Deloitte & Touche analysis