The House's top tax-writer has prepared legislation that would lower levies for families with children, savers and many businesses but makes some changes in tax reductions promised by Republicans' "Contract With America," documents show.
As promised by the contract, the GOP's campaign pledge to America, the bill's centerpiece is a $500 tax credit for children less than age 18 in families earning less than $200,000. A tax credit is subtracted from the amount a taxpayer owes.But under the legislation unveiled Thursday afternoon by House Ways and Means Committee Chairman Bill Archer, R-Texas, the credit would be non-refundable, according to a document obtained by The Associated Press.
That means taxpayers who owe less than $500 could use only as much of the credit as it would take to make their tax liability zero and would not be entitled to a refund for the difference from the Internal Revenue Service. The contract promised a refundable tax credit, which meant that people who owe no or very little taxes would be entitled to a refund.
The change would mostly affect lower-income people with children who owe so little in taxes that they would have been entitled to a refund check under the initial GOP plan.
As the contract promised, the Ways and Means measure would also reduce the capital gains tax rate paid by people who sell land and other property and create more generous individual retirement accounts.
Archer has said the measure will cost about $200 billion over five years, and the documents obtained by AP did not provide precise figures. Republicans say they plan to pay for it with savings from revamping welfare, renewing some restrictions on Medicare and cutting other programs.
Along with their pledge to eliminate federal deficits by 2002, the Republicans' promise to reduce taxes for millions of Americans was the main thrust of the contract, their guiding doctrine during last fall's election campaign. Archer said Wednesday that his bill followed the contract closely.
"If you had to track it, the contract will be 90 percent there," he said. "We ran on it, we all signed it, and we'll do what we said we were going to do."
But Democrats complained that the tax cuts would be a boon to the rich, paid for with cuts in welfare and other programs that largely serve lower-income Americans.
"They are shifting it from the children, who they're so brutal and cruel to, to the wealthy and rich who voted for Republicans last November," said Rep. Harold Ford, D-Tenn., a member of the Ways and Means panel.
Democrats and some Republicans have already complained that the $200,000 income ceiling for the children's tax credit would allow tax breaks for well-to-do families. But Archer decided not to change that figure for fear of violating a key promise of the contract.
Polls show that some voters would prefer greater deficit reduction to lower taxes, but many lawmakers find tax-cutting legislation hard to oppose. President Clinton and House Minority Leader Dick Gephardt, D-Mo., have each proposed their own, less expensive tax cuts, both aimed at lower-income people than Archer's legislation.
The tax cut legislation is likely to be approved by the Ways and Means panel next week and by the full House afterward. Its toughest congressional hurdle is likely to be the Senate, where many Republicans, including Senate Finance Committee Chairman Bob Packwood, R-Ore., say deficit reduction should be the year's top focus, not lowering taxes.
The documents show that Archer's bill would also:
- Lower taxes for many companies that must pay the alternative minimum tax, which is aimed at businesses with so many deductions or credits that they could otherwise escape paying income taxes. This reduction, popular with business, was not part of the GOP contract.
- Allow more generous depreciation for companies with large amounts of costly equipment, a provision called neutral cost recovery.
- Allow tax-free withdrawals from Individual Retirement Accounts for home buying, higher education and health-care costs. Contributions to the accounts would be taxed.
- Reduce the capital gains tax rate paid on profits of property sales and eliminate any taxes paid on increased property values that result simply from inflation.
- Repeal the tax increase on the best-off Social Security recipients included in Clinton's 1993 deficit-reduction package.
- Increase deductions for small businesses and people with home offices and boost the size of estates that are exempt from taxes.