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Republicans waffling on 10 percent tax cut

February 23, 1999
Web posted at: 6:40 p.m. EST (2340 GMT)

WASHINGTON (AllPolitics, February 23) -- Support for a Republican plan for an across-the-board 10 percent tax cut may be losing momentum in the House, as the party considers other ideas.

House Speaker Dennis Hastert (R-Illinois) and Majority Leader Dick Armey (R-Texas) have both recently raised doubts the GOP caucus would unite behind the plan for a 10 percent cut of the income tax rates.

Tax cuts

House Republicans must deal with a harsh new reality: They now only have a six vote majority, and that is only if their party is united. But for weeks, the GOP has been anything but united over the issue of tax relief.

No sooner had House Budget Committee Chairman and presidential hopeful John Kasich and others started talking about an across-the-board cut when GOP moderates, like Rep. Nancy Johnson and 16 others, undercut that proposal with their plan for targeted reductions.

When asked about those comments Tuesday, Hastert said it was still under consideration, but so were other ideas: "Well, there's a lot of types of tax cuts in the menu ... Some people are talking about an across-the-board tax cut, there's marriage penalty, there's reduction for earnings test and seniors and Social Security. There's a lot of things that we're looking at and I think whatever we do will be part of a mix."

The plan for a broad-based cut has drawn heavy criticism from the White House and congressional Democrats, who say it would primarily benefit the rich. GOP leaders are painfully aware they have no choice but to deal with them on taxes.

Gephardt indicated Tuesday Democrats might open to a deal. "We can talk about targeted tax cuts like we've been talking about, the president's been talking about. Maybe that can be married up with a proposal to raise the minimum wage."

Any dealmaking will begin with the chief Republican taxwriter, House Ways and Means Committee chairman Bill Archer. He will come up with a cut though he doesn't know yet what he can sell.

"It's always easier if you have a bigger majority. There's no question about it. But I'm satisfied that in the end whatever bill I design will be able to pull all of the Republicans together and have the support of all the Republicans," Archer told CNN.

The primary objections of GOP moderates to Kasich's plan is the $743 billion price tag. Their alternative would allow retirees keep more of their earnings, expand tax credits for health care and housing and address the so-called "marriage penalty."

The moderate tax cut package would cost $100 billion over the next five years.

Tax cut wouldn't benefit everyone

Would every taxpayer really benefit from the broadbased tax cut? And how much?

For answers, let's look at the latest and most thorough study of the 10 percent tax cut plan. A study done by Congress' bipartisan joint committee on taxation, a source that both Republicans and Democrats turn to for accurate tax forecasting.

In fact, 34 percent of families filing tax returns would see no reduction in taxes at all under the GOP bill, according to the joint tax committee. And another 18 percent would get less than the full 10 percent.

That's because the bills provide a 10 percent cut only in federal income tax rates not the total federal tax burden.

Most importantly, there would be no cut in payroll taxes and most families these days pay more in payroll taxes than income taxes.

And there's no cut in a little item called the "alternative minimum tax." The minimum tax is aimed at preventing the wealthy from avoiding taxes entirely. But now it's preventing more and more Americans from taking tax benefits they're otherwise entitled to -- benefits including the proposed lower rates.

Richer you are, the more you'd benefit

So if it's not really a tax cut for everybody, who is it for? The cut would amount to an estimated $776 billion over ten years and Democrats say most would go to the rich.

"We think a 10 percent across-the-board cut assigns about 80 percent of the benefits to the top 20 percent of taxpayers. We'd much rather prefer targeted tax cuts that really go to people who need that tax cut for a particular reason," House Minority Leader Dick Gephardt said Tuesday.

But Senate Majority Leader Trent Lott said Tuesday, "The president says it will help only the rich. Tell that to the couple, who makes combined, $60,000 a year. That will save them about $800 of their money."

In fact, families making $100,000 a year or more get relatively more. They now pay about 45 percent of the tax. But they would get 52.5 percent of the benefit from the GOP tax cut.

So the Republican plan is not for everybody. And the more money you have, the more you're likely to benefit.

CNN's Bob Franken and Brooks Jackson contributed to this report.

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Tuesday, February 23, 1999



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