Fri, Mar 09, 2001 EST
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Congress' Add-Ons Could Force Proposed
Tax Cut Above $2 Trillion

By Curt Anderson   Associated Press
WASHINGTON — As large as it is, President Bush's tax cut package could easily swell from $1.6 trillion to well over $2 trillion once members of Congress begin adding tax breaks for individuals, businesses and interest groups waiting in the wings.

"I think it's a real concern," said Sen. Max Baucus of Montana, the ranking Democrat on the Senate Finance Committee. "Many of us were here in 1981, when President Reagan proposed his tax cut, and that's what happens. There's a bidding war: Who can come up with the biggest tax deduction?"

For individual taxpayers, many Republicans and Democrats want expanded contribution limits for IRAs and 401(k)s, cuts in capital gains taxes, adjustments to the alternative minimum tax and repeal of the Spanish-American War-era telephone tax. Special interests want such items as tax-deductible savings accounts for farmers and tax credits for American Indian investment and employment.

"There will be a lot of candidates and a lot of fitting pieces together," said House Majority Leader Dick Armey, R-Texas.

"Everything's on the table," added Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee.

Given new projections for an even larger budget surplus, Armey added, Congress "should provide tax relief beyond the level currently being discussed."

Lobbyists for the National Federation of Independent Business, U.S. Chamber of Commerce and other groups are drawing up lengthy lists of tax breaks they want added to the Bush package, arguing that without them it would do very little for corporate America. The items include raising the tax deduction for business meals, increasing equipment expense tax write-offs and extending a foreign tax break for financial services companies.

"There are a lot of things in the tax code that need to be fixed," said Ken Kies, lobbyist for the PricewaterhouseCoopers accounting and consulting firm. "Also, if you are really worried about the economy, and you want to create jobs, giving some corporate tax cut is a pretty good idea for capital formation."

Bush plans to introduce essentially the same tax package he proposed during the campaign, which totals $1.6 trillion over 10 years. It would reduce and simplify all individual income tax rates, gradually repeal the estate tax, double the $500 child tax credit, ease the tax marriage penalty paid by many two-income couples and make the corporate research and development tax credit permanent, among other things.

"The package the president sends to the Hill will be the one he ran on," said Bush press secretary Ari Fleischer.

Key members of Congress, including Armey and Senate Majority Leader Trent Lott, R-Miss., have advocated cutting capital gains taxes on sales of assets as a further tonic to the stagnant economy. Others are pushing to scrap the alternative minimum tax, a complex parallel income tax system intended to prevent the wealthy from escaping taxes but is increasingly ensnaring the middle class.

"This arcane tax system has dogged ordinary taxpayers for long enough," Grassley said. "It's time to close the door."

Killing the minimum tax would cost an estimated $200 billion over 10 years. Two items that passed either the House or Senate, or both, last year — repeal of the century-old 3 percent telephone excise tax and pension reforms that include raising the IRA and 401(k) limits — would cost a combined $107.3 billion, using last year's estimates.

Other breaks that gained wide support in Congress last year but failed to win final passage or were vetoed by former President Clinton include a deduction for health insurance expenses, accelerating full health insurance deductibility for the self-employed, raising the business meal deduction from 50 percent to 80 percent, creating special tax-deductible savings accounts for farmers and providing tax credits for bonds to finance Amtrak high-speed rail projects.

The total price tag: about $90 billion over 10 years, again using last year's projections.

Like most tax bills, some combination of the congressional proposals is likely to wind up in the final product that Congress sends to the White House or in a potential second tax relief bill lawmakers are considering for later in the year. Adding tax breaks sweetens the package to attract more votes and appeases lobbyists who frequently lend financial and political muscle to the politicians.

"This is a bill that's going to get passed and going to get signed into law," said Grover Norquist, president of Americans for Tax Reform. "If I'm a Democrat or a Republican, I care deeply because I could have something in that bill. You don't want to be a cheap date."

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