Clinton administration officials, aiming to secure support for the president’s economic program, are telling members of Congress they would welcome a number of business tax breaks that go beyond what the White House has proposed.
But while the extra measures may be popular with key lawmakers-and special interests-they would add to the budget deficit, particularly later in the 1990s, forcing the administration and Congress to agree to more spending cuts or tax increases to meet President Clinton’s deficit-reduction goal.
Administration officials acknowledged the trade-off but said they anticipated the revenue losses in crafting their overall program.
Two tax proposals top the administration’s list of acceptable add-ons: a broader capital-gains tax credit for small business and an end to the luxury tax on expensive cars, boats, planes and other goods.
The first signs of horse-trading on Clinton’s tax proposals came as the president Tuesday went to the Capitol for his first meeting with Republicans since he outlined his tax and spending priorities in an address to Congress two weeks ago.
Republicans used the private get-together to press Clinton to cut more federal spending to bring down the deficit. Among their suggestions were terminating two big-ticket science projects: the superconducting supercollider and the space station.
Though Clinton and some senior administration officials have said they are looking for more programs to scale back or eliminate, White House aides seemed to brush off the Republican proposals.
Clinton responded to talk of canceling the science projects by noting that Sen. Phil Gramm (R-Texas) might disagree with his GOP colleagues. Both projects, projected to consume nearly $3 billion in fiscal 1994, are being built in Texas.
But the administration was showing much more flexibility on taxes.
Treasury Secretary Lloyd Bentsen, the president’s point man with Congress on tax matters, has given the administration’s blessing to at least two tax proposals and suggested Clinton is willing to accept others to get his economic program through Congress.
In an interview, Bentsen predicted lawmakers would extend the administration’s proposed capital-gains tax credit for small businesses to more and larger firms. And Sen. John Chafee (R-R.I.) said Bentsen has twice told him he wouldn’t oppose repealing the luxury tax.
The measures may please Republican lawmakers such as Senate Minority Leader Bob Dole of Kansas, who has advocated doing away with the luxury tax almost since it was enacted in 1990, because of what he says it has done to aircraft manufacturers in his home state.
But the administration may be more interested in wooing Democrats reluctant to go along with Clinton’s program because they believe its spending cuts or taxes would hurt their constituents or favored interests unfairly.
The luxury tax, for example, also is opposed by Sen. Richard Shelby of Alabama, the sole Democrat to join Dole and 11 other Republicans to sponsor a bill to get rid of the tax. By forgoing this tax, the administration may get Shelby to mute his criticism of Clinton’s proposed energy tax and vote for the program.
A broader capital-gains tax credit, meanwhile, would be favored by Sen. Dale Bumpers (D-Ark.), who has introduced legislation to halve the tax for many more small businesses than would get the break under the administration’s proposal.
Bumpers would cut the tax rate to 14 percent for new, long-term investors in firms with annual revenues up to $100 million. The Clinton measure is limited to certain corporations with sales under $25 million a year.
Clinton had endorsed the broader version in his campaign, and Bentsen signaled he’s ready to do so again. In an interview with a small group of reporters Monday evening, Bentsen said, “I’m sure the Congress will moderate that one.”
D.J. Gribbin, a tax-policy analyst with the National Federation of Independent Business, extrapolated that more than half the nation’s new small businesses, which could number in the millions, would be eligible for the capital-gains tax break.
Both measures would cost the government revenue, however. The Joint Taxation Committee estimates that the Bumpers capital-gains bill, co-sponsored by Rep. Robert Matsui (D-Calif.), would cut federal revenue by a total of nearly $1 billion over five years.
But its cost may rise substantially after that. To qualify for the 14 percent tax rate, investors would have to hold stock in these new ventures for at least five years. Thus, the projections don’t take into account the reduced revenue that the tax would bring after the law has been in effect for some time.
Doing away with the luxury tax on everything except high-priced cars would reduce federal revenue by more than $300 million over five years, according to a Joint Taxation Committee study. The committee hasn’t calculated how much more revenue the government would lose if the tax were removed from cars, too.
