WASHINGTON -- Setting the stage for a showdown over the budget surplus, the Senate approved a far-reaching $792 billion Republican tax cut yesterday that President Clinton has insisted he will veto.
The senators, lining up largely according to party, voted 57-43 to return to taxpayers most of a $1 trillion surplus that is expected to be available over the next decade.
"With the money that's left over, we want to cut taxes, and the president wants to spend it -- that's what this fighting is all about," Senate Majority Leader Trent Lott said. "We're determined to give working Americans the tax relief they're entitled to."
But Clinton and the Democrats say it is dangerous to cut taxes so deeply before it is clear that the projected surplus will materialize. The surplus estimates depend on a continued robust economy and on the presumption that Congress will make deep cuts in domestic spending.
The president argues that an enormous 10-year tax cut could wipe out the surplus and make it impossible to assure the solvency of Medicare and Social Security.
The White House and many Democrats in Congress favor Clinton's smaller proposed tax cut of up to $300 billion.
"The Republican tax cut is so large it would undo our fiscal discipline and imperil our prosperity," Clinton said in a statement yesterday.
Just four Democrats -- Sens. Bob Kerrey of Nebraska, Robert G. Torricelli of New Jersey and John B. Breaux and Mary L. Landrieu of Louisiana -- voted for the Republican bill. And just two Republicans -- Sens. Arlen Specter of Pennsylvania and George V. Voinovich of Ohio -- voted against it.
Negotiations are scheduled to begin over the weekend to reconcile the differences between the Senate's tax-cut bill and a separate version passed by the House, with the goal of forging a combined product before Congress begins its monthlong summer recess at the end of next week.
The House and Senate bill would cut taxes by an equal amount, but they take different approaches to get there.
The sharpest dispute to be resolved is over whether to adopt the House approach of a broad 10 percent income tax rate cut for all Americans regardless of income, or the Senate tack of focusing more relief on the working poor and middle class.
Republican leaders have no intention of sending the finished bill to Clinton until they return from their summer recess after Labor Day.
They want time to try to build enthusiasm for the measure among their constituents before Clinton can veto it and then portray the Republicans as favoring tax cuts for the wealthy over the protection of Medicare and Social Security for the middle class.
Different priorities
Public opinion polls suggest that Americans place a higher priority on paying down the federal debt and on saving Social Security and Medicare than they do on tax cuts.
Republicans contend that they can achieve all three objectives. But the president wants the tax bill reduced by at least half.
Clinton says the Republican proposals would either require unacceptably deep cuts in health, defense, education, environmental protection and other programs, or risk bringing back "the dark old days of huge deficits."
The Republicans counter that their plan would set aside most of the projected surplus for Social Security. They say they simply want to return the excess tax revenue to its rightful owners, the American taxpayers.
"The problem is, if you have a surplus on the table in this town, it gets spent," said House Speaker Dennis Hastert of Illinois. "The president already has plans to spend that money."
Yet Hastert predicted that when the process is concluded -- perhaps not until the end of this year -- a deal would be struck to permit a major tax cut.
"I think the president ultimately will come around on this issue," the speaker said. "We don't think it's risky to have faith in the American people."
The Senate version of the tax-cut bill is considered to be more appealing to middle-class Americans because it lacks some features in the House bill that favor affluent Americans.
For example, the Senate measure would cut personal income tax rates only for those in the lowest bracket, dropping that rate to 14 percent from 15 percent. The House bill, by contrast, would phase in a 10 percent across-the-board reduction on personal income tax rates for all Americans, even the wealthiest.
'Marriage penalty'
The Senate bill would also provide greater relief to married couples by reducing the "marriage penalty" that forces many married couples to pay more in taxes than if they were single.
On one amendment, the Senate voted 98-2 to increase the standard deduction allowed for married couples, beginning in 2001. The measure would also allow couples to file joint returns as if they were single, beginning in 2005.
Reflecting the priorities of Sen. William V. Roth Jr., the Delaware Republican who is chairman of the Finance Committee, the Senate bill also grants breaks for retirement savings, something the House bill does not.
A reduction in the tax rate on capital gains -- a change that would benefit mostly wealthier taxpayers -- is in the House bill but not in the Senate version. Instead, the Senate voted to exempt the first $1,000 of capital gains from taxes, a step intended to help small-scale investors.
The two bills include similar provisions to allow taxpayers de- ductions for the money they pay toward health and long-term care insurance policies.
During hours of voting yesterday on scores of amendments, the Senate also accepted a proposal that would exempt from income taxes any assets recovered by Holocaust victims or their heirs.
But by a vote of 77-23, the senators beat back an effort to delete a Roth plan that would provide a $50 million tax credit for converting chicken manure to electricity. The tax credit is intended as an incentive for a British company that is considering building power plants in the Delmarva Peninsula and in Minnesota equipped with new technology that converts the chicken droppings into fuel.
Roth and both Maryland senators are promoting the idea as environmentally and economically vital. States in the region, including Maryland, have already restricted farmers' use of chicken manure in fertilizer because it is thought to be a major source of pollution in the Chesapeake Bay.
Whither the chicken waste
Sen. John Ashcroft, a Missouri Republican, argued that this proposal "gives a break to foreign corporations when there are U.S. companies capable" of converting chicken manure "into something useful." Two companies in his home state, Ashcroft said, turn poultry waste into pollution-free fertilizer.
Roth responded that his proposal would not only help dispose of chicken droppings but also produce a clean alternative fuel to generate electricity.
"Certainly, in this summer of rolling brownouts, we cannot overstate how important this is," Roth said.
All the details of the tax-cut legislation are subject to change before Congress and the White House finally agree on a measure that will become law. And they might not come to agreement at all, choosing instead to put the question to voters in the 2000 elections.
Expressing the view of many in his party, Sen. Harry Reid of Nevada, the Democratic whip, observed: "I'd rather have no tax cut than the outrageous thing we saw here today."
Highlights of bill
* Reduces the lowest personal income tax rate, to 14 percent from 15 percent, beginning in 2001.
* Eases the "marriage penalty" by allowing couples to file single returns on a joint form, effective in 2005.
* Lowers inheritance tax rates to less than 50 percent and increases, to $1.5 million from $1 million, the amount exempt from taxes by 2007.
* Raises, to $5,000 from $2,000, the annual amount that could be invested in IRAs and raises income limits to quality for Roth IRAs starting in 2001.
* Allows self-employed taxpayers to deduct 100 percent of their health care and long-term care insurance expenses beginning in 2001; allows others to deduct such costs if employers paid no more than 50 percent of premium by 2006.
Pub Date: 7/31/99