On the eve of a crucial floor vote, Speaker J. Dennis Hastert (R-Ill.) personally pleaded with House Republicans yesterday to unite behind a $792 billion tax cut that would roll back income tax rates for all Americans.
Hastert and other House leaders struggled to keep members in line behind a plan they hope will define the party heading into the 2000 elections. But with Democrats overwhelmingly opposed and a dozen GOP moderates in favor of a much smaller tax cut, even Republicans acknowledged the fate of their plan was in doubt.
With the government projecting surpluses of close to $3 trillion over the next decade, Hastert and other leading Republicans say now is the time to give money back to the American people. Under their 10-year plan, income tax rates would be cut across the board by 10 percent, married couples would receive tax relief, capital gains taxes would be slashed and the estate tax would be gradually phased out.
But Democrats -- and even a dozen or so GOP moderates -- say that the Republican plan is far too large and would consume too much money that they say ought to go to retire the national debt and to finance Medicare reform and other high-priority domestic programs.
"We must avoid spending Monopoly money we don't have," said moderate Rep. Sherwood L. Boehlert (R-N.Y.).
Mindful of their narrow room for error, Hastert and his lieutenants tried throughout the day to mollify critics of the tax plan. They told them that Republicans need to stick together to maintain their bargaining position as they begin negotiations with President Clinton over shaping an overall plan for cutting taxes and addressing the fiscal problems of Medicare and Social Security.
House leaders continued to negotiate with moderates into the evening, but several emerged from the session saying they were not satisfied with Hastert's promise of a nonbinding statement on the importance of debt reduction.
Rep. Fred Upton (R-Mich.) called passage of the tax bill "seriously in doubt."
"I don't think a lot of minds were changed," Upton said after the meeting.
During a morning closed-door meeting with fellow Republicans, the usually placid speaker warned House Republicans that their backs were to the wall and that "people will begin to wonder if we are capable of leadership" unless every member stood with him.
With such a strong appeal, Hastert put his credibility on the line in what looms as the toughest and most critical fiscal issue to confront the GOP this year. While the tax plan as drafted has virtually no chance of being enacted with Clinton and the Democrats adamantly opposed, Republican strategists fear that they will lose a potent campaign issue next year if they are unable to sell their tax package even to their own rank and file. A loss could also foreshadow difficulties in passing controversial spending bills later this summer.
"This is a very major vote and I urge every member to look within themselves," said Rep. J.C. Watts Jr. (Okla.), chairman of the House Republican Conference. "I think tomorrow is a defining moment."
Along with major income tax cuts, the House GOP plan drafted by Ways and Means Committee Chairman Bill Archer (R-Tex.) also includes a wide range of education and health care tax relief, pension reforms and savings inducements.
Republicans argue that their plan -- the largest tax cut proposal since President Ronald Reagan's massive supply-side tax cut of 1981 -- is vital to sustaining economic growth and to preventing the government from spending surplus revenue. While the GOP would keep surpluses generated by Social Security within the program, its tax plan would consume nearly eight-tenths of the $1 trillion in surpluses projected outside of the program over the coming decade.
In a bid to placate moderates, House leaders agreed late last week to scale back their tax cuts to the size of a comparable Senate proposal -- from $864 billion to $792 billion.
Archer indicated yesterday that those cutbacks would be achieved by phasing in the 10 percent tax cut more slowly, delaying the pace of repeal of both the estate taxes and the alternative minimum tax and by making more modest reductions in the corporate capital gains tax.
But Rep. Michael N. Castle (R-Del.) said those changes were not nearly enough and yesterday offered a $500 billion tax cut alternative that would reserve half of the projected surplus for debt reductions, emergencies and other high-priority domestic spending.
"During these outstanding economic times . . . Americans deserve significant tax relief," Castle said. "At the same time, surplus projections are uncertain, so we should reserve half of the projected surplus for debt reduction and uncertainties."
House Majority Whip Tom DeLay (R-Tex.) said the GOP leadership had little flexibility in offering moderates further concessions, including more cutbacks in the total tax plan. But he said that many members were simply looking for assurances that the GOP tax and budget plans would provide enough money to reduce the federal debt. Language to that effect is likely to be added to the tax bill, leadership aides said.
"It's an education process," DeLay said. "The more they understand what's really in the bill the more comfortable they are."
At the same time, House Democrats were considering offering a $250 billion tax plan of their own that would, among other things, provide an additional $250 credit for families with children younger than 5 and a $1,000 tax credit for individuals with long-term health care needs.
In the Senate, meanwhile, the Finance Committee began work on its $792 billion, 10-year tax cut proposal, and Senate Democrats appear more interested in a compromise.
"Cutting 800 billion dollars [the approximate size of the proposal by Finance Committee Chairman William V. Roth Jr. (R-Del.)] when you've got $3 trillion coming in is hardly an outrageous, irresponsible move," Sen. Bob Kerrey (D-Neb.) said. The $3 trillion figure referred to the 10-year surplus predicted by congressional budget analysts.
Staff writer Dan Morgan contributed to this report.
Congressional Tax Cut Plans
Here are highlights of the House Republican tax cut plan and the draft of the alternative plan that the Democrats were working on yesterday.
Republican: $792 billion over 10 years
Democrat: $250 billion over 10 years
Income tax reduction
R: 10% across-the-board reduction in tax rates, phased in over 10 years.
D: Additional $250 credit for families with children younger than 5. Itemized deduction for state and local retail sales taxes.
Marriage tax penalty relief
R: Adjust deduction so it's double the standard deduction for joint returns.
R: The maximum capital gains tax rate would drop from 20% to 15% on net capital gains from property held more than one year.
R: Death taxes, with rates as high as 55%, would be phased out over 10 years.
Education tax relief
R: Allows tax-free expenditures from Education Savings Accounts for public and private elementary and secondary school tuition and expenses, as well as to cover higher education costs. Private colleges and universities for the first time could join state universities in offering prepaid tuition assistance plans.
D: Eliminate exclusion of graduate courses in employer-provided educational assistance tax break.
Health care relief
R: Individuals who purchase health or long-term care insurance would be able to fully deduct premiums. The plan provides taxpayers caring for elderly family members at home with an additional personal exemption.
D: $1,000 tax credit for each individual with long-term needs. Accelerate 100% deductibility of the self-employed.
Savings and investments
R: Small-savers exclusion so that the first $200 (for singles) or $400 (joint filers) in interest has earned on savings is not taxed.
Other measures: Both parties would phase out corporate and individual alternative minimum tax, provide breaks for small businesses and "distressed" industries and extend several expiring tax credits.
CAPTION: While Republicans pushed their tax cut plan, Treasury Secretary Lawrence Summers, left, Sen. Harry M. Reid (D-Nev.), OMB Director Jacob "Jack" Lew and Senate Minority Leader Thomas A. Daschle (D-S.D.) discussed a $250 billion Democratic tax cut proposal at a Capitol Hill news conference yesterday.