Congress Passes Tax Cut, Spending Bills Easily

WASHINGTON — After years of bitter divisions over fiscal policy, Congress gave overwhelming bipartisan approval Thursday to a pair of bills embodying a landmark plan to cut taxes by $94 billion while balancing the federal budget by 2002.

Final approval of the five-year budget blueprint came as both the House and Senate completed action on a tax-cut bill that provides new breaks to families with children, people saving for college or retirement, property owners selling homes, investors selling securities, estate heirs, small businesses and big corporations.

The House vote on the tax-cut bill was 389 to 43, with only one Republican, 41 Democrats and one independent voting against it. The Senate approved it, 92 to 8, with only Democrats in opposition. House Speaker Newt Gingrich (R-Ga.) made a rare trip to the Senate floor to witness the climactic vote.

Earlier, the Senate approved and sent to President Clinton a companion bill, already approved Wednesday by the House, that provides the spending cuts needed to bring the budget into balance. The Senate vote was 85 to 15, with three Democrats and 12 Republicans voting against it.

Action on both measures represents a legislative milestone. Congress embarks for a monthlong August recess having ended the budget wars, or at least having declared a truce, in the conflicts that have dominated Washington for the last 2 1/2 years.

The sweeping measures, the product of months of negotiations between Clinton and the GOP-controlled Congress, represent a hard-won middle ground on the most contentious issues between them: reforming Medicare, expanding health coverage for children, rewriting last year’s welfare reform bill and cutting taxes.

“On both sides of the aisle and both ends of Pennsylvania Avenue, Republicans and Democrats, House and Senate and, yes, the president are all saying, ‘This is good for America,’ ” declared Senate Majority Leader Trent Lott (R-Miss.). “It’s a major step forward. Maybe not a leap, but a major step.”

Clinton, who is certain to sign both measures, called passage of the balanced-budget legislation “the achievement of a generation and a triumph for every American.”

The tax bill provides the first major tax cut since Congress enacted Ronald Reagan’s supply-side income tax reduction in 1981. Passage was particularly sweet for Republicans, who made cutting taxes the crown jewel of the “contract with America” agenda upon taking control of Congress in 1994.

“This plan and a balanced budget are what the American people sent us here to do--and we delivered,” said House Ways and Means Committee Chairman Bill Archer (R-Texas).

But it was a bittersweet victory for some because it was a pale shadow of the tax cuts of more than $200 billion that Republicans originally sought. Clinton and his Democratic allies claimed victory in reshaping the tax cuts to include his priorities, such as tax breaks for education and for working-poor families.

“Being bipartisan, in my opinion, really doesn’t mean we give up the principles of our party,” said Rep. Charles B. Rangel (D-N.Y.), a die-hard liberal who nonetheless mounted a spirited defense of the tax bill--and received a bipartisan standing ovation from his colleagues in response.

As the product of political compromise, the tax bill looks more like a shopping list, lacking the ideological clarity or sense of overriding purpose that was seen in the 1986 tax-simplification bill or the 1981 tax cut that carried out the theory of supply-side economics.

But it is a wide-ranging shopping list that delivers benefits to a broad and politically potent collection of voters:

* Families, if they earn between $18,000 and $110,000 a year, will receive a tax credit of $400 in 1998 and $500 in 1999 and beyond for each child younger than 17.

* The top rate on profits from the sale of stocks and other capital gains will drop from 28% to 20% now, and to 18% in 2001 for assets held for five years or longer.

* New tax credits for college expenses of up to $1,500 a year will be available for the first two years of college and $1,000 a year for the next two years of schooling.

* People saving for retirement or college can set up new accounts in which interest accumulates tax-free, even when the money is withdrawn. Only taxpayers earning up to $95,000 a year or couples earning up to $150,000 qualify for either of the new savings incentives.

* Estate taxes will be reduced by gradually increasing the amount that can be passed on to family members tax-free from $600,000 now to $1 million by 2007. For family-owned farms and small businesses, the exemption will be immediately increased to $1.3 million.

* The alternative minimum tax, which was designed to ensure that taxpayers do not eliminate all tax liability through deductions and shelters, is reduced for individuals and businesses.

The bill was approved after a debate in which both sides tried to claim credit for the booming economy that has made it possible for Congress to provide a tax cut while balancing the budget. Democrats said the country is now enjoying the economic benefits of the big 1993 deficit-reduction package Congress passed with no support from Republicans.

But Republicans argued that Clinton and the Democrats would have never embraced the goals of balancing the budget and cutting taxes without pressure from the GOP.

“The best thing that ever happened to Bill Clinton was the election of a Republican Congress,” said Rep. David Dreier (R-San Dimas).

The fact that the bill was supported by many liberal Democrats, such as Rangel and House Minority Whip David E. Bonior (D-Mich.), is a tribute, in part, to how politically difficult it is to oppose tax cuts even when they include GOP mainstays. Rangel, commenting on the few Democratic dissenters, said: “Thank God most all of them are in districts that are secure.”

But dissenting liberals, including House Minority Leader Richard A. Gephardt (D-Mo.), continued to complain that the bill, with its capital-gains tax cuts, inheritance-tax relief and other benefits to corporations, was too skewed to more-affluent taxpayers.

“This is no deal for the average American,” said Rep. Maxine Waters (D-Los Angeles). “There will be partying on Wall Street tonight.”

The only House Republican to vote against the bill was Rep. Tom Campbell (R-San Jose), who objected to the per-child tax credits, which he said would not spur economic activity.

Earlier in the day, the Senate voted, 85-15, to approve the spending half of the compromise budget legislation, which cuts projected spending by a total of $270 billion over five years.

Hard-core liberals such as Sen. Paul Wellstone (D-Minn.) and ardent conservatives such as Sen. Phil Gramm (R-Texas) were among the lawmakers arguing against the budget bill.

Gramm said the bill does not do enough to curtail federal spending on entitlements, while creating the new children’s health program.

* CONSUMER IMPACT: Tax bill could hurt annuities, airline fares; changes in capital gains treatment. D1, D3.

* RELATED STORY: A27