House: Time Right For New Tax Cut?

Vote is imminent as Republicans push to reduce 'marriage penalty' for couples.

Republicans and Democrats this week are waging a defining battle over billions of dollars in tax cuts and Social Security - a fight that could sway votes in the November election or, if they become deadlocked, lead to another government shutdown.

On one side is the plan offered by House Republicans - a five-year, $80 billion package that would cut taxes for many middle-class constituents, including married couples, farmers, and small-business owners.

On the other is a more modest cut of $25 billion offered by Democrats.

In the middle is the Social Security system, the financial safety net for the nation's senior citizens, which President Clinton and many Democrats see as a greater priority than an election-eve tax cut. The president has urged Congress to reserve any budget surplus - now estimated at $80 billion - to long-term reform of Social Security, which some experts say will not be able to meet all its obligations to beneficiaries by 2032.

Winning the Democrats?

But with a showdown on the House floor expected today or tomorrow, Republicans have crafted a tax-cut package they hope will entice even some Democrats. The GOP has set aside more than one-third of the $80 billion to ease the "marriage penalty" for about 24 million couples by raising the standard deduction for married people. Other key provisions would allow the self-employed to deduct 100 percent of health-insurance premiums, and raise the tax-free exemption on estates to $1 million.

House majority leader Dick Armey (R) of Texas predicted a "generous" number of Democrats would vote for the Republican bill. "I guarantee that it will pass and it will pass big," he said.

But it could face resistance in the Senate, where some Republicans have expressed reservations about using the budget surplus.

Democrats, in urging a smaller tax cut that they say would not draw down the surplus, are banking that more Americans are concerned about Social Security's future than about getting a tax break.

"I would be surprised if we saw defections on our side, at least in the Senate," says Senate minority leader Tom Daschle (D) of South Dakota. "The American people are mostly concerned about losing Social Security."

Who'd get the break?

With an eye to attracting support from Democratic lawmakers, House Ways and Means Committee chairman Bill Archer (R) of Texas drafted the Republican bill to include mainly tax breaks for middle-income citizens and some for low-income groups. The size of the tax cut is also dramatically scaled down from earlier GOP proposals that ranged from $100 billion to $700 billion.

The bill includes the following major provisions:

* Most important, it would reduce the unpopular "marriage penalty," which causes 2 of 5 American couples to owe higher taxes than they would if they were single, according to a study by the Congressional Budget Office (CBO).

Over the past two decades, the proportion of couples paying a marriage penalty has increased because of a sharp rise in dual-income couples and the increasing equality in the earnings of husbands and wives.

The bill would lower the penalty by raising the standard deduction for married couples in 1999 from $7,200 to $8,600, equivalent to double the $4,300 deduction now allowed for single filers. As a result, the average married couple would enjoy a $243 tax reduction per return, according to the Joint Committee on Taxation of Congress.

* Another chunk of the bill, $17.9 billion, would lower estate taxes by raising the tax exemption on estates from the current $600,000 to $1 million in 1999.

Push-Pull Over Tax Cut Vs. Social Security

Meanwhile, $15 billion would go toward allowing individuals to exclude from taxes as much as $200 ($400 for married couples) in interest and dividends.

Meanwhile, $15 billion would go toward allowing individuals to exclude from taxes as much as $200 ($400 for married couples) in interest and dividends.

* For small-business owners, the bill includes a $5.1 billion provision that would allow 3.3 million self-employed taxpayers to deduct all of their health-insurance premiums beginning in 1999.

Democrats criticize the GOP tax-cut proposal as a short-term bid to sway voters. They contend the tax cut would undermine efforts to reserve the entire budget surplus until a plan is established for ensuring the long-term financial health of the Social Security system. Republicans counter that the small tax cut would still leave 90 percent of the surplus for handling Social Security.

What economists think

Economists from across the spectrum also voiced dislike for the GOP bill, calling it a political "grab bag" of tax breaks that will stimulate consumption, put upward pressure on interest rates, and complicate more fundamental reforms of Social Security. The economists, including Federal Reserve Chairman Alan Greenspan, said this week that better for the US economy would be to use the surplus to reduce the national debt.

If a tax-cut bill gets attached to a bill that funds government agencies, and is vetoed by Mr. Clinton, it could provoke a government shutdown.

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