The Lost Cap

The Senate preserves a tax cut

Supporters of the $720 limit on the amount a family would save as a result of President Reagan's 10% tax-rate cut, which went into effect last Friday, never really expected their amendment to become law. Passed two weeks ago by House Democrats to dramatize their claim that the President's tax policies favor the rich and penalize the poor, the measure faced a Republican-controlled Senate and ultimately a presidential veto that Congress lacks votes to override. Last week, as expected, the Senate delivered the legislative coup de grace to the cap by a 55 to 45 vote mostly along party lines. Observed Republican Senator Robert Dole of Kansas, the Senate Finance Committee chairman: "This [vote] is probably a total political exercise." Indeed, as a campaign weapon for both sides, the lost cap will surely figure in the rhetoric of 1984.

Before the vote, Democrats, with partisan zeal, flogged the equity issue. Exclaimed Democrat Alan Cranston of California, who is running for President: "The President says that poor people must sacrifice. But what happens when Democrats say it's time for the rich to sacrifice? The President cries, 'Foul!' " Grumbled House Speaker Tip O'Neill: "It may have been a victory for the President, but it was a defeat for fairness." Senate Republican leaders delayed the vote to enable Reagan, at his televised press conference on Tuesday, to make the G.O.P. pitch. Insisting that the Senate preserve the third and last stage of his 25% tax-rate cut, he said, "Fairness is not slapping tax increases on 2.4 million small businesses, 350,000 family farms and millions of middle-income married couples who file joint returns. True fairness means honoring our word."

Democrats argued that a limit was necessary because the President's tax cut helps people primarily in higher income brackets. By contrast, the $720 cap would have hit hardest some 4 million taxpayers earning $50,000 or more a year. But Republicans pointed out that a roughly equal number of middle-class families and individuals earning between $30,000-$50,000 a year would also benefit from the full cut. For instance, a $30,000-a-year married couple (one child, filing a joint return, claiming four exemptions) can now expect a tax saving of about $430 annually.

Had it become law, the $720 cap would have added an estimated $6 billion to revenues in fiscal 1984. Now Congress must turn its attention to raising $73 billion in new taxes over the next three years as mandated by the $859 billion budget resolution passed two weeks ago. Said Senator Dole: "There is a lot of fat in the tax code that ought to be examined and tightened up." But Dole would be the first to agree that to raise $73 billion Congress would have to sew up an awful lot of loopholes. This file is automatically generated by a robot program, so viewer discretion is required.