GOP Holds Fast Against Pressure to Slash Taxes

WASHINGTON — Despite election-year pressures, looming budget surpluses and GOP promises of tax reductions as far as the eye can see, many Republicans in Congress are doing a remarkable thing: They are curbing their appetite for tax cuts.

The Senate this week is slated to vote on a budget that calls for setting aside $157 billion in projected surpluses over the next five years instead of using the windfall to trim taxes. The budget provides only $30 billion for tax cuts--and only if they are offset with tax hikes or spending cuts.

The apparent show of restraint has won applause.

“Given the desires on the part of both sides of the aisle to increase spending or cut taxes, this is not such a bad place to be,” said Susan Tanaka, vice president of the Committee for a Responsible Federal Budget, a nonpartisan group.

But many conservative Republicans are furious that their leaders are backing away from a signature GOP issue. They argue that the party needs to stick to its message of smaller government and lower taxes if it is to stand for anything in the 1998 elections.

“There once were Republican budget leaders who advocated $350 billion in tax relief, then settled for $85 billion last year, and this year are talking about a tax cut that is anemic and an embarrassment,” said Rep. David M. McIntosh (R-Ind.), a leading tax-cut proponent. “This is the incredible shrinking Republican budget leadership.”

Republicans in the House are hoping to make room for a bigger tax cut in their version of the budget. House Majority Leader Dick Armey (R-Texas) has said it could be in the ballpark of $60 billion. But that pales in comparison with the $350-billion cut Republicans called for in their “contract with America” after they came to power in Congress in 1995.

What’s more, the House is poised to pass a $26-billion highway spending increase that could make it even harder to find room in the budget for more tax cuts.

“It limits our ability to have significant tax cuts,” said House Budget Committee Chairman John R. Kasich (R-Ohio), who said he would lead the fight against the highway bill as a throwback to the big-spending politics Republicans usually rail against. “This is a significant detour from where our party has been going in the past.”

Kasich said Sunday on the “Fox News Sunday” television show that President Clinton should veto the bill if it passes in its present form.

Republican caution on tax cuts is a tribute, in part, to how effectively Clinton has set the parameters of this year’s budget debate. By proposing in his budget to reserve projected surpluses until Congress decides how to prepare Social Security for the baby boom’s retirement, Clinton made it far more difficult politically for Republicans to finance a big tax cut with the impending budget windfall.

“The president called the shots when he said that we would reserve the surpluses for Social Security,” said Robert Reischauer, a budget expert at the Brookings Institution. “That put a very high fence around the field in which the budget game will be played.”

The budget maneuvering is also a tribute to the political appeal of pork-barrel spending over tax-cutting, even for Republicans who came to Congress pledging to upend the log-rolling ways of Washington.

“I’m worried that we’re sliding toward a traditional Congress--focused on ‘What road can I get for my district?’--rather than an ideologically driven one, offering a different vision of government,” said Rep. Mark E. Souder (R-Ind.), one of the crop of Republicans elected in the conservative landslide of 1994.

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House Speaker Newt Gingrich (R-Ga.) has boldly promised that Congress will cut taxes every year that Republicans are in control. But when it comes to saying how big a tax cut, Gingrich and his lieutenants--erstwhile strategists of bold, revolutionary action--now sound like apostles of incrementalism.

“You don’t have to hit it out of the ballpark every time at bat,” said Grover Norquist, a Gingrich ally who heads Americans for Tax Reform. “I’d rather have a certain, small tax cut than not get anything. It’s three yards and a cloud of dust.”

The budget resolution expected to be approved by the Senate actually allows no net reduction in taxes. It calls for $30 billion in tax cuts only if they are offset with tax hikes or spending cuts. The resolution, which sets broad spending and revenue targets for the coming fiscal year, does not mandate exactly what kind of taxes will be reduced.

But the budget resolution does recommend a hodgepodge of possible tax cuts, including $10.5 billion over five years to begin reducing the so-called marriage penalty. That is a pale shadow of the $90 billion needed to eliminate the situation in which married couples pay more in taxes filing jointly than as individuals.

Senate Budget Committee Chairman Pete V. Domenici (R-N.M.), principal architect of the budget, argues that Congress should not embark on more ambitious tax cutting or spending schemes before the budget surplus is more securely in hand. “Let’s not begin the era of black ink with a raft of new programs on either side,” said a top Domenici aide.

While the Senate budget does not allow the big tax cuts desired by conservative Republicans, it also makes no room for the domestic spending initiatives sought by Clinton, such as school construction aid and an expansion of Medicare.

The president proposed financing some of those initiatives with revenues from a possible settlement with the tobacco industry. The Senate’s budget resolution calls for using tobacco settlement revenues--which may never materialize--to help shore up Medicare for the retirement of the baby boomers.

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But the Senate’s budget bears Clinton’s imprint in one important respect: It accepts his view that budget surpluses should not be used for tax cuts or spending increases until Congress decides how to bail out Social Security.

Republican divisions over tobacco money, surpluses and tax cuts are likely to surface during this week’s debate on the budget. Senate Finance Committee Chairman William V. Roth (R-Del.) and other senators will offer amendments calling for bigger tax cuts. Roth wants a $65-billion tax cut financed with revenues from the tobacco settlement, but Budget Committee sources predict his amendment will not pass.

Another push for bigger tax cuts is expected in the House, where all members are up for reelection this year, and the tax-cutting wing of the GOP has traditionally had a louder voice.

But even in the House, leaders are scrounging for ways to cut taxes without dipping into the surplus, fearing Clinton will argue that the GOP is endangering Social Security if the surplus is tapped.

Kasich has endorsed using proceeds from a tobacco settlement or from a cigarette tax increase to cut middle-class taxes. That puts him at odds with Domenici, whose budget earmarks tobacco money for Medicare.

Kasich has also endorsed a plan to tap the surplus and channel the money to taxpayers--not as a tax cut but under the rubric of helping shore up Social Security. Kasich would use 80% of any surplus to establish retirement accounts for anyone who has paid into the Social Security system.

The job of cutting taxes has been complicated by the highway bill. The trade-offs are so painful that some House Republicans want budget action postponed until later this spring, hoping that new revenue estimates in April will give budget writers more room to maneuver.

The spectacle of House members pushing for more local road projects--possibly at the expense of tax cuts--gives heartburn to some conservative activists. As Gary Bauer of the Family Research Council and Stephen Moore of the Cato Institute put it in a Wall Street Journal opinion piece:

“Things have deteriorated so much on Capitol Hill that a majority in the GOP now believes that it is better politics and economics to spend tens of billions of budget surplus dollars on a pork-barrel federal highway bill than to provide tax relief to working families.”