Bush to Propose Tax-Cut Package : To Urge Lower Capital Gains Rate, ‘Enterprise Zones’ and Oil Credits

WASHINGTON â€”  President Bush plans to send Congress next week a series of new tax cut proposals, including his controversial plan to reduce the maximum tax rate on capital gains to 15% from the present level of 28% to 33%, Administration officials said Monday.

The package constitutes the first glimpse of tax measures that will be included in the revised budget plan that the President will present to Congress on Feb. 9.

The proposals all follow up on promises that Bush made during the 1988 presidential campaign. They include:

--A tax credit designed to help poor families pay for child care so that the parents can work. The money, which would be paid as a cash grant to families earning $10,000 a year or less, would provide up to $1,000 for each child.

Urban Redevelopment Plan

--The creation of new tax-free “enterprise zones� to encourage redevelopment of run-down urban areas. The plan has long been advocated by Bush’s new secretary of housing and urban development, former New York Rep. Jack Kemp.

--New tax incentives to spur oil and gas exploration. It was not clear Monday precisely what Bush would propose in this area, but he has championed a tax credit of up to 10% of exploration expenses to be used to help offset the minimum tax.

The presence of tax cut measures in Bush’s first budget proposal is something of a surprise because they could cost the government needed revenues and make it more difficult to reduce the federal deficit.

Tax experts said that, depending on how the measures are structured, they could drain the Treasury of between $1 billion and $10 billion in revenues. Also, the cut in capital gains taxes is unpopular with Democrats.

Senior Administration officials said that the specifics of the various tax cut plans--crucial to any calculation of their cost--have not been finally decided on either by Bush or by Treasury Department strategists. The Treasury has been exploring a series of alternative proposals.

However, they said that, for the most part, the proposals would be designed to take effect “sooner, rather than later.� There had been some thought earlier that the President might delay some of the proposals in an effort to avoid hurting his deficit-reduction drive.

The proposal to cut capital gains tax rates is by far the most controversial. The tax is levied on profits from the sale of assets such as stocks or investment property. Most taxpayers now pay a maximum 28% on capital gains, which is taxed as ordinary income, but a few taxpayers pay a maximum rate of 33%.

Would Encourage Savings

Bush has contended that the reduction is necessary to help spur more investment and saving, both of which are needed to help keep U.S. firms competitive in the global marketplace.

Administration officials say that the proposal will be designed so that it compensates for revenue lost through the rate cut with new revenues generated by increased business activity. As a result, they say, Bush will still be able to meet his deficit-reduction goals.

However, tax experts are sharply divided over such claims, and both the congressional Joint Committee on Taxation and the Congressional Budget Office have said that the plan would cost the government billions. Most of the benefit would go to affluent taxpayers.

Moreover, congressional Democrats have warned that, if Bush were to propose a cut in capital gains taxes, they would seek to match that with a plan to increase the top tax rate for individuals, which would hit hard at high-income taxpayers.

Bush’s proposal on a child care credit is less controversial.

Democrats have their own child care plan, which would involve direct government payments for experimental child care programs. Bush advisers say that the President’s plan is better because it would allow families to spend the money on whatever care they feel is best.

Bush reiterated in a news conference Friday that he still supports the capital gains proposal. Senior officials confirmed Monday that the four ideas would be included in his budget revision package on Feb. 9.

On that date, Bush plans to address Congress on his Administration’s priorities and to announce revised budget proposals that will show how he wants his program to differ from the budget submitted earlier this month by President Ronald Reagan.

Top Administration officials have indicated that the new Bush budget plan will be relatively detailed in describing the changes in spending Bush wants. Bush is expected to seek slower growth in defense spending and smaller curbs on domestic programs.

Bush advisers say that the new President has turned to proposing new tax incentives, rather than spending programs, both because he believes they do more good and because they do not overtly add to government outlays.

However, some tax reform advocates have complained that Bush may be undermining the 1986 Tax Reform Act, which sought to eliminate tax preferences for special interest groups.