WASHINGTON -- The Great Tax Bidding War is now officially under way.
Yesterday, in response to a Republican proposal for a $500-a-child tax break to virtually every American family, House Democratic leader Richard A. Gephardt proposed a tax cut for families earning less than $75,000 a year -- regardless of whether they have children.
Tomorrow night, President Clinton will take to the airwaves in what aides are advertising as a "fireside chat" to endorse yet a third version of a middle-class tax cut.
"It's a game of leapfrog," said Frank Luntz, a Republican pollster who has been offering advice on the politics of tax cuts to the incoming House speaker, Newt Gingrich, and other Republicans.
"That's what Clinton and the House Democrats are trying to do to us."
The spectacle of a bidding war to decide who can deliver the most generous breaks to the middle class alarms some economists and Wall Street analysts. They fear that tax cuts could escalate the federal budget deficit, boost already-rising interest rates and ignite inflation.
But in the midterm elections, Republicans swept into power on an aggressive platform of cutting taxes, and a consensus has developed among the Democrats left in power that they can either jump on the tax-cutting train -- or get run over by it.
The president's aides said last night that the details of Mr. Clinton's proposal were still being worked out but that his plan -- like Mr. Gephardt's -- would not apply to the wealthy and the upper-middle class. One cutoff figure being mentioned was $100,000.
White House officials, trying to distance themselves from their rivals' plans, also insisted yesterday -- as they have in the past -- that any tax cut proposed by Mr. Clinton would recommend a corresponding spending cut so that the tax cuts would not raise the budget deficit.
Accordingly, administration officials said Mr. Clinton's budgeteers are busy preparing his annual budget plan, to be unveiled early next year.
They are considering consolidating or eliminating huge government agencies, possibly including the Energy Department, the Department of Housing and Urban Development and the Transportation Department.
For his part, Mr. Gephardt did not disclose the amount of his proposed cut, let alone his method of paying for it. He said little more than that the tax cut would affect only individuals or households making under $75,000.
Economists, even conservative "supply siders" who believe that well-targeted tax cuts can stimulate the economy, don't believe that a tax cut of this kind would have that effect -- or even that the economy needs stimulating. But middle-class workers whose incomes have stagnated want tax relief -- and there is a lot of political hay to be made by the party that gets credit for providing it.
"We can no longer allow our economy to move forward while our people stand still," Mr. Gephardt said.
One of the centerpieces of Mr. Clinton's successful 1992 election campaign was a promise of a middle-class tax cut. As president, Mr. Clinton devoted his energies to getting a handle on the budget deficit and on reordering the spending priorities of the Reagan-Bush years so that poor Americans get a larger share of the pie. The upshot was that Mr. Clinton shepherded through an income-tax increase that hit upper-income Americans and actually raised middle-class taxes slightly in the form of a gasoline tax.
Clinton's only tax relief
The only tax relief signed into law by Mr. Clinton was aimed at the working poor and came in the form of an increase in the Earned Income Tax Credit.
In their "Contract with America," signed by 378 GOP House candidates, Republicans proposed a $500-a-child tax break, which has become the starting point for all discussions on taxes.
The Republicans included in their plan families that earn up to $200,000 a year. Republican leaders have avoided discussing the specifics of paying for it, and have simply pointed to plans developed over the past two years by Rep. John R. Kasich of Ohio, the incoming chairman of the Budget Committee, for cuts in dozens of federal departments.
The Republicans also favor cutting the capital-gains tax rate in half and indexing it to account for inflation. Democrats like Mr. Gephardt have attacked this proposed tax cut as being of benefit mainly to the rich, but Mr. Clinton promised the incoming Senate majority leader, Bob Dole of Kansas, that he would consider it.
Yesterday's developments showed how complicated all such discussions will be after the 104th Congress convenes early in the coming year.
Gephardt jumps the gun
Mr. Gephardt, anxious to keep the now-minority House Democrats from being steamrollered, deliberately jumped the gun on Mr. Clinton. It wasn't the first time that Mr. Gephardt, who sought the Democratic presidential nomination in 1988, has gone his own way.
Last year, as the Democratic majority leader in the House, he fought fiercely -- and unsuccessfully -- against the Clinton-sponsored North American Free Trade Agreement -- at a time when Mr. Clinton desperately needed a legislative victory.
Publicly, Clinton administration officials played down talk of any rift between the White House and Mr. Gephardt, who they said briefed White House chief of staff Leon E. Panetta on Monday about his speech yesterday.
Privately, administration officials said Mr. Gephardt had been asked to delay his speech, but had refused. Mr. Gephardt himself was not shy about discussing his own motives.
While denying that he was trying to "upstage" the president, Mr. Gephardt made a point yesterday of flatly stating that he was independent of the White House.
He also declared war on the Republican leaders in the House, whom he labeled "Newt Gingrich and his band of trickle-down terrorists."
"Our no-holds-barred two-year campaign to recapture the people's House begins today," said the former House majority leader. "I'm here to say that the Republicans should enjoy their majority while they have it, because in two short years, it will be gone."