The Republican-controlled Senate yesterday approved a $792 billion plan to provide broad-based tax relief to many Americans, end the so-called marriage penalty, help defray health care and educational costs, and offer dozens of sweeteners to corporate America.
Capping three days of deliberations, the Senate voted 57 to 43 for the tax-cutting plan, largely along party lines. By voice vote, the Senate added a new provision that would exempt the first $1,000 of an individual's capital gains from taxation.
While senators aired their philosophical differences and argued over broad tax provisions during hours of floor debate, many maneuvered behind the scenes to secure approval for narrower provisions benefiting their states, constituents or favorite industries. Tacked on at the last minute, for example, were provisions benefiting Vermont maple syrup producers, fishermen whose incomes fluctuate widely from year to year and private foundations owning property containing hazardous wastes.
Yesterday's vote sets the stage for what is likely to be swift negotiations between Senate and House tax writers and leaders next week over a compromise package that GOP lawmakers can tout to constituents during the August recess.
Despite the virtual certainty of a presidential veto, the Senate action, coupled with the House's recent approval of a similar package, helped sharpen the image the GOP wants to carry into the 2000 election -- that of a vigorous tax-cutting party bent on ensuring that government does not grow too fast.
"We want to cut taxes and the president wants to spend it," Senate Majority Leader Trent Lott (R-Miss.) told reporters shortly before the final vote. "That's what the fight is all about."
The Senate rejected a smaller, $290 billion Democratic alternative on Thursday, and President Clinton condemned the Senate's vote yesterday as "the wrong choice for America's future." He said the tax cut was "too big and too bloated" and would "undo our fiscal discipline and imperil our prosperity."
"Let's be clear on what exactly this fight is about and what it isn't," Clinton said. "It's not about whether to cut taxes. It's about whether to have tax cuts that save Social Security and Medicare, or tax cuts that undermine them. Tax cuts in the national interest, or tax cuts for special interests."
Four Democrats voted for the GOP-drafted bill: Sens. John Breaux (La.), Bob Kerrey (Neb.), Mary Landrieu (La.) and Robert G. Torricelli (N.J.), while Republicans Arlen Specter (Pa.) and George V. Voinovich (Ohio) voted no. Virginia and Maryland senators voted with their parties.
Both the Senate and House versions use future surpluses to provide $792 billion of tax benefits over 10 years, but the two plans differ significantly in their details. The Senate, for example, would reduce the lowest tax rate from 15 percent to 14 percent and expand the number of Americans who pay that rate while the House would cut rates across the board by 10 percent.
Also, the House bill repeals the estate tax while the Senate plan merely scales it back. The Senate plan provides far more in marriage penalty relief than the House's, but the House bill would slash capital gains rates, which the Senate bill doesn't address.
The Senate bill, meanwhile, spends less on income tax breaks and more on targeted provisions to help cover the cost of college tuition, child care, health care insurance and long-term care for the elderly, as well as added incentives to save for retirement.
The dispute over how to reduce income taxes may be one of the hardest -- and messiest -- to resolve because of the sharp divisions among Senate Republicans over how to proceed. Lott and other GOP leaders favor the House's across-the-board tax cut approach over their own bill, but Senate Finance Committee Chairman William V. Roth Jr. (R-Del.), chief architect of the bill, insists that his approach is less expensive and more beneficial for middle- and lower-income taxpayers.
As Senate and House leaders gathered yesterday for preliminary talks on a compromise plan, an emphatic Lott told reporters, "Clearly it's going to have to be something different from what's in the Senate bill." Roth replied that while the House provision has "great merit," he intends to stick with his approach.
Negotiators will have to get beyond other hurdles as well. As a concession to moderate Republicans troubled by the cost of the plan, House leaders agreed to make their across-the-board income tax cut conditional on progress in reducing the national debt. Senate conservatives oppose the so-called trigger provision and are likely to try to knock it out in conference. However, Reps. Fred Upton (Mich.), Michael N. Castle (Del.) and other moderate Republicans have vowed to vote against the final package unless the trigger is retained.
Similarly, the Senate plan would cut off all tax benefits after 10 years, to adhere to an obscure budget rule, while the House tax relief is permanent. Both sides said they would consider ways to get around this problem.
While Senate and House Republicans stressed the importance of their plans to families, they also shower generous benefits on the business community -- perhaps the most powerful constituency pushing for some kind of a tax deal this year.
The House version would provide business with close to $100 billion in direct tax relief -- including a cut in the corporate capital gains rate -- and a huge increase in foreign tax credits, as well as specific relief for arms exporters, steel companies, banks, life insurance companies, and the oil and gas industry.
The Senate version, with roughly $60 billion in direct relief, is somewhat less tilted toward business. But it includes a 10-year extension of the research and development tax credit -- double the House bill's five-year extension. The Senate provision alone would provide corporations with $27 billion in tax relief over the next decade.
Yesterday, the Senate at the last minute tacked on about two dozen amendments that contained additional benefits for special interests. One provision, offered by Sen. Wayne Allard (R-Colo.) and supported by the Independent Bankers Association of Colorado., would aid community banks. The cost to the U.S. Treasury over 10 years is estimated to be $50 million.
Earlier, the Senate approved two amendments by Sen. Spencer Abraham (R-Mich.) -- one preventing income tax from being levied on monies or lands recovered by Holocaust victims or their heirs, and the other expanding the tax credits for donating computers to communities.
But an Abraham provision that would have helped golf course operators by declaring that caddies are "independent contractors" rather than employees did not make it into the bill.
Sen. Larry E. Craig (R-Idaho) also failed in a long-running effort to help sugar beet growers in the Snake River consortium buy a processing facility from the Amalgamated Sugar Co.
A Craig aide said the purchase has been stalled by ambiguity over the tax consequences of the sale. Others have charged that the clarification sought by Craig would provide a tax break to Amalgamated's owner, Harold Simmons.
Comparing the Plans
Highlights of the $792 billion GOP tax relief packages approved by the House and Senate.
House: Across-the-board 10 percent cut in income tax rates, phased in over 10 years. After 2001, annual cuts would kick in only if interest on the national debt drops.
Senate: Reduce tax rate on bottom bracket from 15 percent to 14 percent.
H: Allow married couples to claim a standard deduction of $8,600, replacing current $7,200 deduction.
S: Allow married couples to file single returns in a combined form.
H: Cut top tax rate for most investments held at least a year from 20 percent to 15 percent.
S: Exempt the first $1,000 of capital gains, beginning in 2006.
H: Pre-tax amount that could be set aside in education savings accounts, formerly education IRAs, would increase from $500 to $2,000 annually.
S: Allow pre-paid tuition programs for private colleges. Taxes could be deferred on interest earned.
H: Phase out tax on inheritances by 2009.
S: Raise exemption to $1.5 million beginning in 2007 and repeal rates above 50 percent.
H: Allow self-employed to deduct 100 percent of health care and long-term care insurance expenses beginning in 2001.
S: Similar to House bill, but deductions for health insurance premiums not paid by employers would be phased in through 2006.
H: Increase contribution limits to some employee benefit plans and increase portability of pensions to ease worker transitions between companies.
S: Raise contribution limits for individual retirement accounts from $2,000 to $5,000 and gradually raise income limits for contributors. Many smaller changes.
Alternative minimum tax
H: Phase out the AMT over 10 years.
S: Modify the AMT and allow personal exemptions to be taken against it.
SOURCES: Congressional Quarterly, Associated Press