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News analysis: Demos, GOP at a standoff on taxes

Both parties betting benefits of conflict will outweigh backlash

SHARE News analysis: Demos, GOP at a standoff on taxes

WASHINGTON — In early January, House Speaker Dennis Hastert told the Republican leadership to abandon its effort to pass a single, hugely expensive tax-cut package in the face of unyielding opposition from President Clinton. Instead, he ordered up a series of narrowly drawn tax measures that could rise or fall not on their price tags but on their political appeal.

"People understand these in individual bites," Hastert said Wednesday.

In one sense his strategy has played out as well as he could have hoped.

Following the lead of the House, the Senate has passed the two biggest of this year's tax bills in the past few days, one that would repeal the federal estate tax and another that would provide a tax reduction to nearly all married couples. And on Wednesday, the House overwhelmingly passed a measure that would increase the allowable level of tax-deductible contributions to individual retirement accounts and 401(k) retirement programs.

In every case, the measures have attracted significant support from Democrats, who at this point are arguing not about whether tax cuts are justified, only about how big they should be.

Flush with legislative success and bolstered by sharp upward revisions in the projected federal budget surplus, Republicans said Hastert's strategy has proven that tax cuts still pack a considerable political punch.

But in another sense, Hastert's strategy has led nowhere.

With one exception — legislation that removed the limit on how much retirees could earn before losing part of their Social Security benefit — Clinton has refused to go along, and in recent days the administration has unleashed a sharp attack on the Republican tax cuts as a fiscally irresponsible giveaway to the wealthy at the expense of working people. Vetoes are almost certain for the estate tax and marriage tax bills.

The result is a continuation of the ideological standoff that has defined fiscal policy since the Republicans took control of Congress in 1994. And it has led both parties to bet that the political benefits of conflict in this election year will outweigh the risks of any backlash from voters who might prefer to see compromise.

Most Republicans seem confident that they will get credit from voters for having passed the tax cuts. They say Democrats in Congress and Clinton, and by extension Vice President Al Gore, will come off as obstructionist, out of step with the politics of prosperity and on the side of the Internal Revenue Service.

"Americans increasingly see the tax code as unfair or even stupid," said Frank Luntz, a Republican pollster. "The context that Republicans are trying to set up is that if George W. Bush is elected president, there will be no marriage penalty, no death tax and that fill-in-the-blank tax will no longer exist," he said.

But some Republicans, including Hastert, are concerned that the party not be seen as totally unwilling to compromise in order to get some of its legislation signed into law.

As the House and Senate prepare to hash out the differences between the bills they passed to cut taxes for married couples, Hastert is pushing for the final legislation to look more like the House bill, which is less expensive and does less for upper-income taxpayers than the Senate version.

"We don't want to give the president any excuse not to sign it," Hastert said. "It's not good enough to pass a bill and send it to the president's desk and have him veto it."

Some analysts go even farther and say that the Republicans have missed a great opportunity to get all they could realistically hope to accomplish on tax cuts, and to neutralize the charge that they are running a do-nothing Congress. They say that Democrats, increasingly nervous about being caught on the wrong side of the rapidly changing politics of taxation, have offered alternatives that should have been very attractive to Republicans.

In debating tax cuts for couples, Democrats in the Senate offered a plan to all but eliminate the marriage penalty paid by many two-income couples, albeit only for couples earning less than $150,000. Democrats in the House and Senate both offered plans to reduce the estate tax substantially. But Republicans brushed those offers aside.

Republicans "won't take yes for an answer," said Bruce Bartlett, an economist at the National Center for Policy Analysis, a conservative research group.

"Democrats have moved a long way in the direction of the Republican agenda," Bartlett said. "But Republicans seem to have made their plans six months ago and bulled their way through without taking into account any change in circumstances. The makings of a deal are there, but they seem to be rejecting it in favor of an all or nothing approach, which is pig-headed."

The calculation from the Democratic side is that voters will see that the individual tax bills passed or in the pipeline this year add up to the same big package that Republicans abandoned last year without even sending to the White House for a veto.

Taking their cue from the White House, Democrats in Congress are seeking to portray Republicans as working on behalf of a thin slice of the wealthiest taxpayers and ignoring the concerns of lower- and middle-income people who need tax breaks for pressing issues like child care, health care and college tuition costs.

"Their base is that rich two percent, our base is the rest, and that will be the fight," the Democratic leader in the Senate, Tom Daschle of South Dakota, told a news conference this week.

But a growing number of Democrats are siding with Republicans, reflecting both the growing surplus and the fact that their base in the middle class is seeing its tax bill rise as it becomes increasingly affluent. Some Democrats are worried about being tarred by the old complaint that they are too prone to tax and spend.

The heavy bipartisan vote in the House Wednesday on expanding tax breaks for retirement savings — a measure opposed by the White House — was only the latest example of how Democrats in Congress are acting to keep themselves from ending up on the wrong side of a rapidly shifting political dynamic. Among the Democrats who voted for both the estate tax repeal and the Republican tax cut four couples was Sen. Robert Torricelli of New Jersey, a state where taxes have been a critical political issue. Torricelli said on Wednesday that he was interested in running for governor.

"Senator Torricelli believes that tax cutting is not the sole domain of the Republican party," said Richard McGrath, the senator's spokesman. "Contemporary economic reality is that middle-class families with two incomes still have to struggle to pay basic expenses and should be given a break if the resources are available."