COMPROMISE $1.35 trillion tax cut survives Senate test

<br>WASHINGTON (AP) _ A compromise 11-year, $1.35 trillion tax cut package remained unscathed in the Senate, paving the way for Congress next week to negotiate the final shape of President Bush's legislative

Friday, May 18th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ A compromise 11-year, $1.35 trillion tax cut package remained unscathed in the Senate, paving the way for Congress next week to negotiate the final shape of President Bush's legislative centerpiece.

Most Senate Republicans, allied with a band of Democratic moderates, voted down amendments Thursday by Democratic critics that would have trimmed the estate and income tax cuts in favor of tax breaks for college tuition and married couples.

Senate Finance Committee Chairman Charles Grassley called the estate tax vote in particular a ``critical test'' of the measure's bipartisan balance, one that should signal to the House and Bush that major alterations will be difficult in a Senate divided between 50 Democrats and 50 Republicans.

``It preserves the basic elements of the bipartisan compromise,'' Grassley told reporters.

A final Senate vote on the bipartisan package was set for late Monday, but no votes on amendments were planned Friday. That would set up a showdown conference next week with the House, which has passed tax cuts closer to Bush's original 10-year, $1.6 trillion plan.

A number of senators want to include some sort of trigger to ensure that projected budget surpluses actually materialize before future tax cuts take effect. Sens. Olympia Snowe, R-Maine, and Evan Bayh, D-Ind., unveiled a proposal Friday that would condition future tax cut installments as well as spending increases on meeting preset debt reduction targets.

``This is a prudent course of action,'' Snowe said. ``We have a 50 percent chance of being wrong.''

But sponsors admitted they don't yet have the 60 votes necessary under Senate rules to pass the trigger. The Bush administration and most congressional Republican leaders have been opposed.

In debate Thursday, Republicans characterized the tax cut as a fair return of a portion of the huge 10-year, $5.6 trillion projected budget surplus to taxpayers. The cut, they said, would still allow government to meet its spending priorities and fix inequities in the tax code such as the penalty on many two-income married couples.

Bush, promoting his energy proposals Thursday in Nevada, Iowa, again urged Congress to pass the tax cuts ``as quickly as possible.''

``We need to start getting some of that surplus in the hands of the hardworking American people to provide a second wind to our economy,'' the president said.

Democrats who oppose the bill say it would explode in cost to $4 trillion in the second decade, just as the baby boom generation begins retiring and straining Social Security and Medicare. They said it would give huge tax breaks to the rich and relatively little to middle- and lower-income people.

``You've got real losers under this bill as it's currently written,'' said Senate Minority Leader Tom Daschle, D-S.D.

But the Senate voted 56-44 against an amendment by Sen. Kent Conrad, D-N.D., to reduce the bill's tax cuts for upper-income people so middle-class married couples would get more relief sooner. Eight Democrats voted to defeat that amendment.

Seven Democrats later joined most GOP senators in defeating, 55-43, an effort by Sen. Charles Schumer, D-N.Y., to scale back the bill's estate tax cuts in favor of enhancing its proposed college tuition tax deduction.

The next major test for the bill will come Monday evening on a Democratic amendment to reduce the 15 percent income tax rate to 14 percent and trim proposed cuts in upper-income rates. The bill leaves the 15 percent rate paid by 70 percent of taxpayers intact while creating a new 10 percent rate for an individual's first $6,000 in earnings, $12,000 for a married couple.

The main bill would cut income taxes across the board, including a reduction in the top 39.6 percent rate to 36 percent _ higher than the 33 percent Bush and House Republicans want. It would also create a new 10 percent rate on the first portion of every taxpayer's income and reduce other rates by three percentage points by 2007.

GOP leaders say they will attempt to win Bush's 33 percent top tax rate in the House-Senate conference.

``I am confident we can, and we will, because we must,'' said House Majority Leader Dick Armey, R-Texas.

Moderate Democrats and Republicans, however, said such major changes could jeopardize the bill's chances in a Senate divided 50-50 between the parties. They were meeting privately to draft a joint position aimed at setting bottom-line conditions on any changes.

``There's a lot of moderates that can't be counted on to vote for anything,'' said Sen. John Breaux, D-La.

The new 10 percent rate would be retroactive to Jan. 1, giving individual taxpayers $300 and married couples $600 through lower paycheck withholding as an economic stimulus this year.

The measure would also gradually repeal the estate tax and raise exemption amounts to $4 million; double the $500 child tax credit by 2010 and allow more low-income people to claim part of it; allow a tax deduction for college tuition; and permit larger contributions to IRAs and 401(k)-type plans.