Senate Finance Committee Leaders Outline Tax Cut Distribution

WASHINGTON — The ranking Republican and Democrat on the Senate Finance Committee unveiled their proposal Friday for distributing the $1.35-trillion tax cut Congress approved this week, offering a bill that would roll back income tax rates but not as aggressively or swiftly as President Bush had sought.

The bill worked out between Sen. Charles E. Grassley (R-Iowa), the finance committee chairman, and Sen. Max Baucus (D-Mont.) would immediately reduce the lowest tax rate to 10% from 15%, retroactive to Jan. 1. Withholding tables would be adjusted, reducing this year’s tax bite by $300 for single filers and $600 for married couples filing jointly.

The measure would also cut all other income tax rates over the next six years, repeal the estate tax by 2011, boost child tax credits and ease the so-called marriage penalty, which forces millions of married couples to pay more than they would as individual filers.

Grassley acknowledged that the bill will almost certainly be modified before it emerges from the finance committee. But he said he believes that the basic provisions have enough support among the panel’s 20 members to pass.

“In the end, no one got everything he or she wanted,” Grassley said. “There’s not enough support either in this committee or in the full Senate” for some of Bush’s proposals, such as steeper income tax cuts.

Bush’s plan sought an overall tax cut of $1.6 trillion over 10 years; the Grassley-Baucus measure partly reflects congressional approval earlier this week of a budget resolution trimming the targeted reduction to $1.35 trillion over 11 years.

But the changes--as well as a number of provisions in the compromise bill that would help low-income households--also reflected Democratic criticism that the Bush plan was skewed to the wealthy. Initial indications were that the bill would fail to soften such criticism.

“Sen. Grassley’s proposal disproportionately benefits the wealthiest Americans at the expense of about 72 million middle class taxpayers,” said Minority Leader Tom Daschle (D-S.D.). He pledged to “use the amendment process in committee and on the Senate floor to make this tax cut both more fair and more responsible for working families.”

Some Democrats privately expressed anger that Baucus had moved so eagerly to cut a deal with Grassley. In a meeting of Senate Democrats on Thursday, many members had urged him to move slowly and press for more concessions from Republicans.

But Baucus, a Democrat facing reelection next year in a state that Bush easily carried, was under political pressure to compromise.

“There are senators from both sides of the aisle who do not agree with this [bill],” Baucus said. “I am doing what I think is best for our country and the people of Montana.”

If adopted, the bill’s most immediate effect would be to reduce to 10% the rate on the first $6,000 of taxable income for singles, and the first $12,000 for married couples. Bush’s plan would have phased in this change.

The bill would also lop about 3 percentage points off every other tax rate, which currently range from 28% to 39.6%. The first point drop would come in 2002, the second in 2005 and the third in 2007.

Bush had pushed a more aggressive plan that would have cut the top marginal rate to 33%, and done so by 2006. The White House indicated it has not given up on some of its goals.

“We are encouraged by the overall process,” said Claire Buchan, a White House spokeswoman. But she added that the administration will work “to ensure that the ultimate package is as close to the president’s plan as possible.”

The House, in a series of bills, already has passed the Bush plan virtually intact.

Other provisions of the Senate bill would:

* Increase the child credit, currently $500, to $600 in 2001 and to $1,000 by 2010. For the first time, the credit would be extended--in the form of a rebate--to working families who don’t pay taxes because of insufficient income.

* Ease the marriage penalty by doubling the standard deduction for married couples and expanding the lowest rate bracket. These changes would not begin until 2006, however.

* Gradually reduce the estate tax until it was eliminated by 2011. Until then, the amount of an estate shielded from taxes would increase from $675,000 currently to $4 million over the next five years.

* Allow deductions up to $5,000 for college tuition starting in 2002, a measure designed to appeal to some Democrats on the finance committee.

* Expand caps on contributions to retirement accounts to $5,000 from $2,000 over 10 years.

The costliest component of the package is the reduction in tax rates, projected to reduce government revenue between $700 billion and $800 billion over the next 10 years, according to finance committee aides.

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Times staff writer James Gerstenzang contributed to this story.