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GOP Pushes Tax Bill That Targets Working Families

By Janet Hook
Los Angeles Times

Taking another politically perilous step in their march toward a balanced budget, House Republicans have decided to push for passage of significant tax increases that would hit both moneyed business interests and low-income working families.

The tax hike bill, drafted by Ways and Means Committee Chairman Bill Archer, R-Texas, would raise some $30 billion over seven years by eliminating tax breaks for an array of corporate interests - including the movie industry, pharmaceutical manufacturers and insurance companies.

In addition, it would generate $20 billion over the same period by imposing new restrictions on the Earned Income Tax Credit, which was designed to pull working families out of poverty.

The proposed increases, if approved, would be linked to a $245 billion package of tax reductions that are considered the centerpiece of GOP tax policy. Those, in turn, would become part of a far-reaching package of deficit-reduction measures expected to move through Congress this fall.

Likely cries of protest from movie moguls, insurance agents and others who stand to lose substantial tax advantages under Archer's legislation could add to the difficulty of passing the GOP budget package, which already contains politically explosive proposals to curb the growth of Medicare, cut farm subsidies and slash spending across a broad range of federal programs.

The Center on Budget and Policy Priorities, a Washington-based research group, noted that the $30 billion reduction in business tax subsidies would pale in comparison to the business tax breaks that would remain on the books and the new ones that Republicans have included in their $245 billion tax relief package.

Indeed, some of the proceeds from cutting business tax breaks, derided by some critics as "corporate welfare," would go back to other businesses. The Archer bill would extend several tax breaks that are about to expire, including one for research and development expenditures that is important to many businesses.

Some Republicans acknowledged that they hope Archer's effort to scale back or eliminate more than two dozen business tax breaks will help insulate the GOP from growing criticism - from across the political spectrum - that it is not doing enough to fulfill its promise to eliminate inappropriate business subsidies at the same time it reduces spending on assistance programs for the poor.

One of the biggest and most controversial tax breaks that Archer would eliminate is a credit enjoyed by U.S. companies operating in Puerto Rico and other U.S. territories. Archer proposes a 10-year phase-out of the credit, which primarily benefits pharmaceutical companies. The drug makers are expected to lobby hard to preserve the tax break.

Hollywood would be hit by a proposal to tighten up rules governing the way film producers and others in the entertainment industry write off expenses. Special rules now allow film makers to write off expenses more rapidly than other industries, based on projections of the income their films will make over time. Archer's bill would require additional forms of income to be counted in those projections, according to a source familiar with the plan, who said that the change would raise about $300 million in revenues over seven years.

Another big-ticket item, which is likely to meet heavy opposition from thousands of insurance agents around the country, would end an important tax advantage for corporate-owned life insurance policies. The Archer proposal would raise about $5 billion over seven years by ending a deduction that makes it profitable for companies that take out life insurance on their workers and borrow against the policies.

Some of the proposals run afoul of Republicans' constituent interests. Rep. Nancy L. Johnson, R-Conn., whose home state is heavily dependent on the insurance industry, said that the proposal on corporate-owned life insurance is "a real body blow." She said that she would try to ease its effects during committee debate.

The working poor would be hit by Archer's proposed limits on the Earned Income Tax Credit, which cuts the tax burden of households earning up to about $27,000 a year - a program that Republicans traditionally have praised because it rewards work.

Archer's plan would reduce the annual income limit on eligibility for the credit to about $23,600 and disqualify entirely workers without children. Archer said that the changes are "designed to cut fat while protecting the benefits of working families who need help the most."