GOP's Tax-Cut Dilemma: It's Businesses vs. Families

To most Republicans in Congress, it's time for Americans to get another tax cut. But competing demands from two powerful GOP constituencies - the Christian right and the business community - are making it hard for lawmakers to agree who will reap the biggest benefit.

Social conservatives such as the Christian Coalition want tax cuts that will directly benefit families. Their goal is to eliminate the "marriage penalty" - a quirk in the income-tax system that causes some married couples to pay higher taxes than do unmarried couples who file as individuals.

But business groups have their eyes on lower capital-gains taxes, reduced estate taxes, and a loosening of certain limits on deductions. They're also pushing for extension of expiring tax credits, such as that for research and development.

There's a sizable chunk of change up for grabs - the Senate's budget calls for $30 billion over five years, but the figure could go as high as $60 billion by the time the House weighs in with its budget blueprint. That's not as much as the $95 billion tax cut of last summer's balanced-budget pact, and the smaller pot may only make it harder for Republicans to choose one group over the other - or even to try to satisfy both, if they can find enough money to do so.

"We'll have to choose. I'm not sure what that's going to be," says Sen. Orrin Hatch (R) of Utah. "It could be a combination, but that's hard because there's not a ... lot of money for the reductions."

The Christian Coalition has budgeted $300,000 for a campaign to persuade Congress to get rid of the marriage penalty. It has already run $25,000 in radio ads in leaders' districts. "It's just amazing to us that you have one tax rate for two people living together, but two people who are married are penalized," says coalition spokesman Arne Owens. Spouses earning $30,000 each pay $1,400 more in federal taxes every year than does an unmarried couple, he notes. "We just believe that sends an antifamily message, it's unfair, and it needs to be stopped."

It's a sentiment widely shared on Capitol Hill. "I cannot see a chance that we'd have tax cuts and not address [the marriage penalty]," says Rep. Anne Northup (R) of Kentucky. "Whether we address it completely is another question."

Business groups argue that reducing business taxes helps everybody, including families. "We look to changes in the tax code that would foster savings and investment and help the job creation we've seen in this economy," says Martin Regalia, chief economist for the US Chamber of Commerce. "If you can create an environment conducive to economic growth, everyone will share in that economic growth."

Mr. Regalia says the chamber is concerned that in an election year, its tax-cut preferences may get short shrift. "It makes our job a little harder and raises our concern they may not get done."

MANY Republicans have mixed feelings. "The marriage penalty discourages marriage. The capital-gains tax discourages investment and retards the economy. The estate tax is a terrible impediment to a person who creates their own [enterprise] ... and who wants to leave it to his children," says Rep. Robert Livingston (R) of Louisiana, the powerful Appropriations Committee chairman. "Obviously, you can't do everything."

A key player, Rep. Bill Archer (R) of Texas, chairman of the House's tax-writing Ways and Means Committee, isn't saying which variant he favors. "The chairman will hold his cards close to the vest," says spokesman Ari Fleischer.

Hanging over the debate is the possibility of billions of dollars in new revenue from any tobacco deal. President Clinton wants to use that money, if it materializes, to pay for new social programs. The Senate budget uses it to shore up the troubled Medicare program. Representative Archer argues that any tobacco money ought to go to taxpayers in the form of cuts in taxes related to health care.

But some in Congress also want to spend more. First, Mr. Clinton has maneuvered Congress into using any budget surplus to strengthen Social Security. Then, lawmaker desires to spend big in other areas - such as the highway and transit bill, reform of the Internal Revenue Service, and defense readiness - leave less to give back.

Still, GOP leaders will try to distribute tax benefits as widely as possible, says Rep. Ray LaHood (R) of Illinois. "They're going to try to accommodate a broad range of taxpayers so people can go back and campaign on that."