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Those Competing Tax Plans

Pass The Mustard, Hold The Caviar

By Charles Bierbauer/CNN

WASHINGTON (July 4) -- What's on the menu for the Fourth of July picnic? Let's say the middle-class taxpayers are having hamburgers; the folks with lower incomes are having hot dogs and the rich are grilling filet mignon. Will President Clinton and Congress offer enough Grey Poupon in the way of tax cuts to make this an Independence Day most taxpayers can relish?

Forget what the founding fathers said about "all men are created equal." That's not true when it comes to backyard grilling or paying taxes. And it's certainly not true when it comes to granting tax breaks.

The hard bargainers from the Senate, House and White House get together next week to sort out their competing tax cut plans and battle for the hearts and wallets of the taxpayers. The verbal skirmishing has already begun.

"Clinton has begun a dangerous game by attempting to instigate class warfare," Republican chairman Jim Nicholson fired from his bunkered hill this week. Nicholson was responding to charges the Republican plans favor the rich.

Clinton, who seems to favor hamburgers with "the works," has ordered tax cuts that are more heavily seasoned with some help for the working poor but also spiced with some breaks for those with richer tastes.

Class warfare is a serious charge. This one centers on who pays taxes and who would get the biggest break.

One of the sparks of the original American Revolution was the demand for "no taxation without representation." The current issue, an ember of the 1995 Republican Revolution, offers no tax reduction without a representative tax payment.

What does that mean?

All the tax proposals -- House, Senate and Clinton's -- put a $500 per-child tax credit on the table. It's as basic as the potato salad. But not everyone makes potato salad the same way. I happen to like chopped pickles in it, but could do without the celery.

It's the recipes that differ:

House -- $500 per-child credit ($400 only in the first year) for children to age 17 and family incomes to $110,000.

Senate -- $500 per-child credit for children to age 17 and family incomes to $110,000. Parents of teenagers must deposit to tax-deferred education account.

Clinton -- $500 per-child credit ($400 in first year) for children to age 17 and family incomes to $75,000 (to $100,000 in year 2000). Low-income families eligible.

The low-income credit is a key difference. Families with income into the mid-$20,000 range are eligible for the Earned Income Tax Credit (EITC). It is a formula based on income and number of children which produces refunds for those working families. Clinton would refund the child credit in addition to the EITC payment. The Republicans would not.

Republicans argue that families at that wage level are not paying taxes and have not earned a tax break. Democrats contend that they have because they are paying the Social Security payroll tax. For many lower income earners payroll taxes are actually higher than their income taxes.

Pass the salad while you debate whether what's withheld from your paycheck for Social Security is a tax or not.

Then chew on the question of what's "middle class."

Clinton's $75,000 family income? The Republicans' $110,000?

Most Americans are sure they are middle class, or so they tell pollsters. But their view of what is a middle-class income seems to run as low as $20,000 or as high as $200,000.

Statistics are not going to make this debate any clearer. The president says two-thirds of his tax cuts would go to the middle 60 percent of taxpayers. The Republicans say 72 percent of their tax cuts would go to families earning between $20,000 and $70,000.

Whatever emerges from the negotiations ahead, it will be called a "middle-class tax cut" because that's what all parties have promised. They have ebbed close to the point where backing out on the deal would be a major breach of promise to those who voted for either Clinton or the Congressional Republicans on the strength of the tax cut pledge.

"I don't want to start talking about veto now," Clinton said this week.

That's why Republicans took delight in seeing Clinton coming closer to their recipe for the child tax credit. That's why liberal Democrats may find the cole slaw a little sour, but still palatable, if Clinton does not change it much more.

Since they are already close on the main menu item, it is the side dishes where there may be more compromise. Clinton would not get all he wants in the way of education credits. But he'd get a fair helping. The Republicans are headed for capital gains cuts that in the past would have been swept off the table.

This picnic table is heavily laden. The net effect would be about $85 billion in tax cuts over the next five years. There's a point when the negotiators will have to push back and say there's not another bite they can handle.

The House's indexing of capital gains may be too big a bite. The Senate's array of Individual Retirement Accounts may be reduced. Clinton's appetite is, well, notorious.