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Ways and Means Chairman Presents Tax Cut Proposals

By Eric Pianin
The Washington Post

House Ways and Means Committee Chairman Bill Archer, R-Tex., Thursday dismissed a barrage of Democratic and Senate GOP warnings and presented a costly tax plan that includes a $500-per-child tax credit, a deep cut in the capital gains tax and a cornucopia of business and corporate tax breaks.

The package reflects practically all of the tax provisions in the House GOP "Contract with America" and goes even further by repealing a measure that was designed to assure that corporations do not totally escape paying corporate income taxes through writeoffs and loopholes. Elimination of the corporate alternative minimum tax would greatly benefit capital-intensive industries, such as Texas oil and gas companies that heavily invest in equipment.

Many of the provisions would be a boon to middle and upper income families, such as the $500 tax credit for families earning up to $200,000 a year, a separate credit to help defray the cost of adopting children, and a new Individual Retirement Account (IRA) that would chiefly benefit middle and upper income families that don't currently qualify for IRA tax benefits. But the proposed tax credits are "non-refundable," which means they are of no value to families that have little or no tax liability.

All told, an estimated one third of the overall tax benefits for individuals would go to those earning more than $100,000 a year, or roughly 5 percent of all families and individuals.

In a speech to the conservative Family Research Council Thursday morning, Archer predicted House Republicans would pass the tax package to fulfill a key provision of the "Contract with America." The plan, he said, would provide crucial incentives to strengthen families, deliver long awaited middle-class-tax relief and bolster the economy.

"We have done exactly what we promised we would do - no ifs, ands or buts," Archer told a cheering gathering on Capitol Hill. "I challenge the anti-growth Democrats to stop throwing roadblocks in the path of those who want to try a new way - those who seek to help our employees by helping our employers."

But House Democrats and the White House immediately tagged the $189-billion, five-year plan as a windfall for wealthier Americans and businessmen and a direct violation of an earlier pledge by House Majority Leader Richard K. Armey, R-Texas, and House Budget Committee Chairman John R. Kasich, R-Ohio, to outline, approve and bank spending cuts before putting tax cuts on the table.

GOP leaders have promised to make offsetting cuts in the 1995 budget and to make other savings in welfare programs and Medicare to pay for the tax package. House appropriators recently slashed more than $17 billion of current spending, including heating assistance and nutritional programs for the poor, to help pay for the tax package.

However, some Democrats and key Senate GOP leaders have argued that, in light of growing anxiety about the deficit, that the tax package should take a back seat to efforts to balance the budget. Some critics also have charged that the House Republicans have intentionally downplayed the long term cost of the package, which could top $700 billion over the next decade.

"The most productive thing we can do for American citizens right now is reduce the deficit," said Rep. Sam Gibbons of Florida, ranking Democrat on the Ways and Means Committee.

Rep. Benjamin Cardin of Maryland, another Democratic committee member, urged Republicans to put off consideration of a tax bill until late this year, after they complete work on a long term deficit reduction plan. "I'm opposed to doing taxes first when there's a lot of skepticism about whether we will see any deficit reduction at all," he said.

White House Chief of Staff Leon E. Panetta, ticking off the business tax cuts in Archer's plan, said the proposal to cut the capital gains tax by 50 percent and index the tax rate for inflation would cost about $170 billion over 10 years. He said the Republicans' proposed corporate depreciation write-off would cost $90 billion over the same period and that the proposed abolition of the corporate alternative minimum tax would cost $60 billion.

The GOP-controlled Ways and Means Committee is scheduled to approve Archer's plan next week, but the House will put off final action on the measure until later this spring, when the leadership cobbles together separate spending cut legislation to finance the tax cuts.

Archer and other GOP leaders say the tax plan will enhance economic growth and create more jobs. But Republicans and many economists agree that the $500-per-child tax credit - the costliest and most highly touted feature of the tax plan - will have little, if any, positive impact onthe economy.

Instead, Republican leaders have promoted the credit as a means of strengthening the family and providing long overdue tax relief. The tax credit, for every child aged 18 and under, would be subtracted from the amount a taxpayer owes. The credit would cost an estimated $105 billion over five years, according to the Joint Committee on Taxation, but nearly $295 billion over the next decade. GOP tax writers shaved the cost of the credit by scrapping an earlier version that would have made the credit refundable for some low-income families earning between $15,600 and $22,800.