House passes $189 billion in tax cuts THE TAX-CUT VOTE

THE BALTIMORE SUN

WASHINGTON -- With support from a bipartisan majority, the House approved a $189 billion package of tax cuts for families and businesses last night, fulfilling the final pledge of the Republicans' "Contract with America."

By a vote of 246-188, the House sent the tax-cut measure to the Senate, where it is likely to be scaled back considerably and folded into a budget package to be voted on in the fall.

House Speaker Newt Gingrich, greeted by boisterous applause from his GOP troops, took the floor late last night to thank members of both parties for their hard work and long hours as Republicans rushed to meet the 100-day deadline promised by their contract.

The speaker also made a pitch for the last, and surprisingly controversial, contract item -- dubbed the "American Dream Restoration Act" -- which reversed some of the tax increases approved by the Democrats two years ago at the request of President Clinton.

"I urge every member to ask yourself," Mr. Gingrich said, "in your constituents' lives, won't a little less money for government and a little more money for families be a good thing?"

But many Democrats protested that the tax package directs its benefits to the rich and would be financed either at the expense of government programs for the poor or by further increasing the budget deficit.

"It's reckless," said Rep. Sam M. Gibbons, a Florida Democrat. "It's bad policy for the American economy; it's bad policy for the American people."

Rep. Constance A. Morella of Montgomery County was the only Maryland Republican voting against the measure.

Three other Republicans from the state supported it; all four Maryland Democrats opposed it.

Of 230 Republicans in the House, 219 supported the bill; 27 Democrats joined them in voting for it.

The 176 Democrats who opposed the bill were joined by 11 Republicans and the House's one independent, Bernard Sanders of Vermont.

The Democrats attempted a last-minute maneuver to defeat the tax-cut bill on the contention that one of its more obscure provisions raises taxes in some circumstances. Thus, they argued, its passage should require a three-fifths vote, under House rules that Republicans pushed through on the first day of the congressional session.

But Republicans controlling the parliamentary rulings decided that the complaint lacked merit.

"For too long, we have taken money from hard-working Americans and sent it to Washington," said House Majority Leader Dick Armey of Texas, urging support for the tax-cut measure.

"It's time to send something back. . . . Starting today, relief is on the way."

President Clinton has refrained from explicitly threatening to veto the legislation. But he said yesterday, "We don't need to be cutting education and investment in our future to give tax relief to people who don't really need it."

Senate Majority Leader Bob Dole has promised only that he will not allow the bill to be sacrificed in favor of deficit reduction.

"We're going to cut taxes, we're going to look at the capital gains area of reduction, we're going to look at tax credits [for families with children]," he told reporters last week.

"We're not backing away from the tax cuts."

The House bill would provide a broad array of tax breaks for families earning up to $200,000 a year and business tax incentives that are intended to boost savings and investment and create jobs.

Families would benefit chiefly from a $500-per-child credit, and breaks for married couples, for families who care for elderly relatives, and from an expanded use of tax-free retirement savings accounts.

Businesses would gain mostly from a 50 percent reduction of the tax rate on capital gains and from increased deductions for the purchase of plants and equipment.

The vote on the tax-cut measure in the House was the Republicans' final step in the "Contract with America."

With House approval of the measure, nine of the 10 major items the Republicans had promised to bring to a House vote in the first 100 days of Congress have passed the House.

Only a proposal to impose term limits on members of Congress went down to defeat.

In the hours leading up to the vote, GOP leaders had to muscle and cajole many of their own members who had threatened to block the bill from coming to a vote.

"It's a little more difficult than I would expect," Mr. Gingrich told reporters yesterday after a meeting with Republican lawmakers to make a final pitch for votes.

Most of the rebellious Republicans were resisting a provision to reduce federal employee pension benefits and require larger employee contributions to the pension fund.

That provision would be used, in part, to offset the cost of tax cuts.

Rep. Robert L. Ehrlich Jr. of Baltimore County and Mrs. Morella were among 11 Republican moderates who opposed the bill on the key procedural vote that passed 228-204.

Both said federal workers would wind up with a net tax increase.

"If this is good for American families, it should be good for federal employees," said Mrs. Morella, one of the few Republicans who voted against the bill on final passage.

Mr. Ehrlich supported the bill, he said, because he believes strongly in the tax cuts, particularly the breaks for businesses through the reduction in capital gains.

"But I'm not happy about this [the impact on federal workers]," he said.

House leaders presented Washington-area legislators with a written promise yesterday to reconsider the pension issue before the legislation becomes part of the final budget bill.

But Rep. Tom DeLay, the House majority whip, said yesterday there was little chance of making concessions because the federal employee pension fund is insolvent.

He said Republican leaders were determined to make the program pay for itself so the federal Treasury no longer has to make up the difference between contributions and benefits.

Savings from the federal retirement system would make up $11 billion of the total needed to offset the tax cuts, which are estimated to lose $189 billion over five years.

The legislation also calls for $100 billion in unspecified reductions that could come from social, defense or foreign aid programs.

The tax bill would also be paid for with $64 billion in cuts from welfare programs -- such as food stamps, school lunches and child nutrition programs -- that were adopted by the House two weeks ago.

In addition, the GOP leaders had to contend at the last minute with dissident Republicans who wanted to cap the income ceiling for the $500-per-child tax credits at $95,000, instead of $200,000.

The procedural vote was much closer than the Republican leaders had originally expected, because of the dissidents' fear that the party would be criticized for giving tax breaks to people who don't seem to need them at a time when the government is deeply in debt.

But the leaders refused to budge on that issue, and few Republicans defected because of it.

In final negotiations to nail down support for their bill, Republican leaders made one concession. They agreed to link the tax cuts to enactment this year of legislation that would lead to a balanced budget by 2002.

That means Congress would have to agree on nearly $1 trillion worth of cuts over seven years, and adopt the specific reductions for this year, before the tax cuts could go into effect.

Many Democrats, recalling a history of congressional budget deals aimed at eliminating the deficit that ended in failure, dismissed that compromise as a "fig leaf."

They noted that only the first year's deficit target would have to be reached in order for the tax cuts to take effect.

"The tax cuts are permanent; the spending cuts are only one year," said Rep. Benjamin L. Cardin, Baltimore Democrat.

"We can always come back and change it. Don't think we won't."

A LOOK AT THE HOUSE GOP'S PROPOSED TAX CUTS

INDIVIDUAL TAXES

* Child tax credit. A $500 credit for each child under 18 for families earning up to $200,000 a year.

* Ending of "marriage penalty." Married taxpayers would receive a credit of up to $145 to cover the additional tax burden that married couples often face.

* Expanded IRAs. All workers, regardless of income, could put up to $2,000 annually in a new form of retirement account. They could then withdraw the money, tax- and penalty-free, once they are age 59 1/2 , or if they use the money for college tuition, medical expenses, long-term care or a first home.

* Spousal IRAs. Nonworking spouses would be able to make tax-deductible contributions of up to $2,000 annually to a traditional IRA account.

* Adoption credit. Families earning less than $60,000 who adopt a child would receive a $5,000 tax break.

* Capital gains. The top tax rate on capital gains -- profits from the sale of property like stocks, real estate and artwork -- would drop from 28 percent to 19.8 percent. And no tax would be owed on the portion of capital gains resulting solely from inflation.

* Care for the elderly. Families that care for a disabled elderly relative in the taxpayer's home would get a $500 tax credit.

* Repeal of the 1993 Social Security tax increase. Senior citizens who earn more than $25,000 as individual filers -- or $32,000 with a joint return -- would pay taxes on only 50 percent of their Social Security benefits, instead of the 85 percent in current law.

BUSINESS TAXES

* Capital gains. The top capital gains tax rate for corporations would drop from 35 percent to 25 percent.

* AMT. The alternative minimum tax, which holds even companies with big write-offs liable for some taxes, would be eliminated over five years.

* Small-business breaks. Companies could write off up to $35,000 for new machinery or equipment each year, double the current limit of $17,500.

* Faster depreciation. Businesses could speed up the rate of depreciation on equipment.

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