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On the Hill, Taking Aim At Tax Code

By Eric Pianin and Clay Chandler
Washington Post Staff Writers
Wednesday, January 21, 1998; Page A04

Open season on the tax code officially began yesterday as influential leaders from both parties proposed dramatic – and dramatically different – changes in the way Americans would pay taxes.

House Ways and Means Committee Chairman Bill Archer (R-Tex.) sought to stake a claim on prospective budget surpluses by proposing $200 billion of new tax cuts and loopholes in the coming decade, elimination of the "marriage penalty" this year and a limit on all future federal revenue to 19 percent of the total economy – a reduction from the current 19.9 percent share. He also called for lowering and simplifying the capital gains tax as well as a number of other measures that would primarily benefit upper-income households.

At the same time, House Minority Leader Richard A. Gephardt (D-Mo.) reprised his proposal for revamping the tax code to eliminate most major deductions. He said in a speech that his plan would oblige three-quarters of Americans to pay no more than 10 percent of their income in taxes and dispense with the need for the majority to file tax returns. His plan would be partially financed by a $50 billion increase in taxes on corporations.

The plans are the latest in a deluge of Republican and Democratic proposals for using future surpluses for major tax relief and reform – as well as to begin paying off the $5.6 trillion national debt. Even within the parties, there is little agreement on how, or if, tax changes might happen.

With the return of Congress next week, the Ways and Means Committee, the chief tax-writing panel, will launch a series of hearings on overhauling the tax code and reforming or abolishing the Internal Revenue Service (IRS) as part of a larger debate over how best to move from an era of massive deficits to one of fast-growing surpluses. Budget surpluses will total roughly $660 billion in the next 10 years, according to the latest estimates of the Congressional Budget Office (CBO), and could grow much larger if the economy maintains its current head of steam.

While government watchdog groups and many economists are urging Congress to devote most of future surpluses to debt retirement and stabilizing the Social Security and Medicare systems, Archer and other Republicans and Democrats are clamoring for big tax cuts to boost consumer power, slow the growth of government spending and curry favor with voters in an election year.

"I believe in a balanced budget and fought to enact one . . . but mere balance must not be society's highest goal," said Archer, one of the architects of last year's balanced budget and tax cut agreement. "The giant sucking sound you hear is the sound of taxes being removed from workers' paychecks, denying families the ability to better care for themselves."

The prospect of a surplus has scrambled traditional partisan alliances in Washington, reshuffling legislators into what Deloitte & Touche tax director Clint Stretch calls "a new three-party system" made up of "Spend-its" (those who favor using the surplus for new federal programs), "Bank-its" (those who want to use the excess to pay down the national debt) and "Return-its" (those who want to give the windfall back to taxpayers).

Congressional leaders have virtually ruled out any wholesale changes in the tax code this year – such as the call by House Majority Leader Richard K. Armey (R-Tex.) for a flat tax or Archer's push for a national sales tax. Many analysts also think it unlikely that congressional Republicans will follow through this year with a pledge to mandate elimination of the present tax code – an idea championed by Rep. Bill Paxon (R-N.Y.) – as a way of forcing the debate on an alternative.

Still, with an election on the horizon, lawmakers are eagerly searching for budget and tax proposals that would appeal to voters. President Clinton has already outlined plans for a large expansion of a child care tax credit and targeted tax incentives for energy efficiency in advance of his budget submission in the coming week. Administration officials have strongly suggested they would be inclined to recast last summer's balanced budget deal to make room for additional tax cuts if the strong economy persists.

House Speaker Newt Gingrich (R-Ga.) and Senate Majority Leader Trent Lott (R-Miss.) both favor a combination of annual tax cuts and debt reduction throughout the coming decade, while other Republicans are promoting a series of tax cut measures aimed at strengthening the family and boosting the quality of the environment and the nation's colleges and schools.

Archer's speech yesterday suggested a difference in view between the House's top Republican tax writer and Gingrich. Gingrich has called for a national debate over the future of the tax code, encouraging proponents of the national sales tax and flat tax to spell out their differences in a series of public forums and allowing voters to react.

Archer, in contrast, favors pressing for a consensus within the party ahead of the November election so that Republicans could run on a strong tax platform reminiscent of the "Contract With America."

Archer, a scrappy former feed company executive who takes pride in filling out his own tax returns, unveiled his broad-ranging proposals in a speech in the cavernous chambers of the Ways and Means Committee. He was introduced by Grover Norquist, a prominent conservative anti-tax crusader who later presented the chairman with a baseball cap emblazoned with the words "Cap Taxes!"

The Texas Republican expressed alarm yesterday that, at 19.9 percent of the gross domestic product, the federal government's tax take has climbed to its highest percentage of the economy since the end of World War II. Archer cited the figure as evidence that, despite last year's budget deal, the federal government is still growing out of control.

Administration officials countered, however, that the main factor contributing to these record high tax takes is larger tax payments by affluent households that have been the primary beneficiaries of the recent boom in the economy. White House economists estimate that under tax changes enacted as part of the 1997 budget deal, taxes paid by the typical family of four have fallen to their lowest level in more than 20 years.

Archer said he favored using $200 billion of the projected surplus for tax reduction and $200 billion to reduce the national debt. Kenneth Kies, head of the Congress's Joint Committee on Taxation, said the Archer plan had been designed to leave the remaining $160 billion in surplus forecast by the CBO as a "margin of error," in case the agency's revenue projections prove overly optimistic.

Archer said the fine points of how to shrink the Treasury's tax receipts would best be worked out in legislative committees. But many of Archer's recommendations would primarily benefit upper-income taxpayers and therefore seem certain to provoke opposition from the president.

Clinton's national economic adviser Gene Sperling said yesterday: "The test for surplus proposals has to be: one, is it fair for working families?; two, does it maintain fiscal discipline?; and three, is it the best way to address America's economic challenges? Based on the sketchy information we have, Chairman Archer's proposals don't meet that test."

© Copyright 1998 The Washington Post Company

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