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Favored Few Stand to Gain From Republican Tax Cuts

By Clay Chandler
Washington Post Staff Writer
Sunday, December 24, 1995; Page A01

Embedded in the $240 billion package of tax cuts demanded by congressional Republicans are myriad provisions tailored to benefit a relatively small number of businesses and wealthy households.

Nearly every Republican member of tax-writing committees in the House and Senate can claim a proposal, targeting relief to specific groups of taxpayers. For example:

Senate Majority Leader Robert J. Dole (Kan.) came to the rescue of the funeral industry. At his insistence, the GOP budget plan calls for raising the income cap on tax-free funeral insurance policies to $7,000 from $5,000. The change, meant to offset inflation, would cost the Treasury no more than about $3.5 million over seven years. The boon, though, would be divvied up among only a few dozen firms. One of the companies, American Home Life Insurance Inc., took the lead in lobbying for the break and retains a former Dole aide as its Washington representative.

Sen. Don Nickles (R-Okla.) championed a provision to reduce taxes paid by convenience stores. At an estimated cost of $118 million over seven years, his proposal would allow convenience stores that also pump gasoline to depreciate the value of their property over 15 years, as do ordinary gas stations. Under current law, convenience stores are held to a less generous 39-year depreciation schedule.

A provision drafted by House Ways and Means Committee Chairman Bill Archer (R-Tex.) would extend the 20 percent research and experimentation credit for businesses at a total cost of $3 billion. And by modifying slightly the definition of eligible firms, Archer expanded the break in a way tax analysts said appears to cover three companies excluded under current law: Sequent Computer Systems Inc., Xilinix Inc. and Sierra Semiconductor Corp.

The centerpiece of the Republican budget plan is a tax credit of $500 per child for middle-income families. It accounts for $148 billion, or about 60 percent, of the revenue that would be lost to the Treasury under the proposal over the next seven years.

But the remainder would be used to finance tax provisions the administration and congressional Democrats charge mainly help businesses and the affluent at a time when average Americans are struggling.

In dollar terms, the biggest of those breaks are the $36 billion reduction in the tax on capital gains – profit from the sale of stock, property and other assets – and changes costing $11.6 billion that would make it easier for upper-income households to take advantage of tax-favored individual retirement accounts.

And a host of other measures designed to lighten the tax burden for insurance firms, truckers, newspaper publishers, small natural gas and water utilities and a gaggle of other special interests would cost the Treasury many billions more.

Political analyst Kevin Phillips, a maverick conservative who predicted Ronald Reagan's appeal among blue-collar Democrats, said in his view, House Republicans who insist on new breaks for corporations and special interests are courting "disaster" in the November 1996 election.

"They are like moths drawn to flame," Phillips said. They "cling to this extraordinarily foolish notion that, since everybody hopes to get rich someday, everybody will support them for rewarding people who are rich already."

Not all breaks tucked into the GOP budget plan were championed solely by Republicans, though. One provision extends for two years the airline industry's exemption from an increase in the aviation fuel tax. The change would benefit Trans World Airlines, the hub airport of which is in St. Louis – the Missouri home town of House Minority Leader Richard Gephardt.

Still, Republicans' determination to maintain so many special provisions in their package has contributed to friction between Congress and the White House as negotiators from the two sides struggle to close a budget deal.

President Clinton acceded months ago to the idea of a child tax credit of $500, although his is a stingier version that would cost $55 billion. He also has embraced the GOP call to allow more middle and upper-income Americans to participate in IRAs, and top aides acknowledge privately that he's prepared to swallow a pared-down version of the GOP capital gains cut.

But Clinton aides see little reason to give ground on the "non-family" elements of the Republican tax proposals – particularly when hectoring Republicans about such measures seems only to bolster Clinton's standing in the polls.

In his latest budget plan, Clinton proposed piling a slew of new taxes on corporations and investors – boosting the total revenue raised by the administration's loophole-closing package to $35 billion – as a way of sparing Medicare, Medicaid and other social programs from deeper reductions advocated by Republicans.

Republicans dismiss as demagoguery Democratic attempts to portray their tax bill as loaded with giveaways for the rich. As they see it, the GOP proposal rolls back a host of tax abuses – including breaks for drugmakers in Puerto Rico and for gambling casinos, and interest deductions for corporate life insurance – nurtured by Democrats during the reign of former House Way and Means Committee chairman Dan Rostenkowski (D-Ill.).

"It took the Republicans to crack down on corporate welfare," Archer's spokesman Ari Fleischer said. "The Left always talked about it, but it took the Right to get it done."

Archer reckons the GOP bill closes 32 such "inappropriate" corporate tax provisions, resulting in a net increase in revenue of $26.1 billion over seven years – though his tally is a selective one that excludes many provisions that would mostly favor corporations and the wealthy.

Clinton denounced Republican efforts to scale back the federal estate tax as a bonanza for the richest 1 percent of taxpayers. The Republican plan would raise to $750,000 from $600,000 the value of assets individuals can pass on to their heirs tax-free at or before their death. The plan also would establish a $1 million exemption for family-owned businesses and farms and allow a 50 percent exemption on the next $1.5 million in the value of those enterprises.

Dole, the leading advocate of the change, says the current tax law imposes a crushing burden on small firms. The White House retorts that the measure would benefit only about 20,000 of the nation's richest taxpayers each year and, with a cost of $12 billion over seven years, works out to a windfall of about $90,000 per decedent.

The Republican tax package would lift profits of Indiana-based health insurer Golden Rule Insurance Co., one of the party's biggest donors. The firm has waged a five-year lobbying campaign on behalf of Medical Savings Accounts, which it pioneered.

The company claims MSAs, which work much like IRAs for medical expenses, would keep down medical costs by discouraging policyholders from spending on health care. But many businesses have responded coolly to MSAs, because they have tended not to save them money, and many health experts have warned they favor healthy patients and push up insurance costs for the very sick. The Republican plan provides tax incentives that make MSAs more attractive.

Golden Rule contributed $620,775 in political action committee or "soft money" donations to Republicans and $69,000 to Democrats in the 1993-1994 election cycle, according to analysts at Common Cause. Golden Rule's chairman, Patrick J. Rooney, and president, John Whelan, have contributed at least $152,000 to GOPAC, the PAC House Speaker Newt Gingrich (R-Ga.) chaired until May.

Staff researcher Richard Drezen contributed to this report.

© Copyright 1995 The Washington Post Company

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