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House Democrats start work on tax plan

House Democrats began working Thursday on an alternative to President Bush's tax legislation, centered on temporary tax credits of up to $400 for 80 percent of all taxpayers, a permanent 1 percentage point reduction in the corporate tax rate and a modest cut in taxes on capital gains.

The costs of the Democrats' five-year $90.9-billion measure would be made up mainly by increasing the top individual income tax rate from 31 percent to 35 percent and imposing a 10 percent surtax on taxable income over $1-million.

The plan was discussed Thursday by Democrats on the House Ways and Means Committee. They will vote on various provisions of the plan today and Saturday before putting it before the whole House at the end of this month.

One major challenge to the proposal will be an effort by Rep. Marty Russo, D-Ill., and Rep. Thomas J. Downey, D-N.Y., to replace the middle-income tax credits with credits only for families with children.

"I think there's a real good chance" of making the change, Russo said, but he added that he was waiting for overnight computer runs to figure out how generous the credits could be without raising the overall cost of the bill.

And there may be challenges to the measure's complex plan for reducing taxes on capital gains in a manner much more limited than what Bush has proposed.

This part of the proposal, offered by Rep. Dan Rostenkowski, D-Ill., chairman of the committee, borrows from a plan he supported in 1990 and is structured in a way to encourage investment in small business and to win votes from those Democrats who favor a capital gains cut.

Rostenkowski said after Thursday's session, "I was impressed that my membership was so receptive." In recent years, when tax bills get passed, his ideas usually end up as a big part of them.

That may be true again, although increasingly bitter partisan exchanges in an election year make the outcome unpredictable. If Democrats get some version of this measure through the House, it will supply important elements for any eventual negotiations involving Rostenkowski, senators and the White House.

The chairman said that when this proposal gets to a vote in the House and is measured against Bush's plan, the American people can see "who has the best interests of the middle class" in mind.

At the White House, Marlin Fitzwater, Bush's spokesman, denounced the Democrats for their party-line vote Wednesday to send all of Bush's tax proposals to the floor in one package, instead of deferring to the smaller package he has said he wants passed first.

Both of his plans feature a cut in capital gains taxes for all taxpayers who have them; the House will have a chance to vote on both of them and on the Democratic plan, too.

Fitzwater said the White House is "going to make America quite aware of just who is holding this plan up, who cares about jobs and who doesn't, who cares about economic stimulus and who doesn't, who cares about the economy and who doesn't.

"We do and they don't; we do and they don't," he continued.

Fitzwater said the White House was stalled for now by Democrats on the Ways and Means Committee, whom he compared to "weasels going into a hole."

But he said, "On the Senate side, we will try to work with the Finance Committee and others to get good legislation."

But at the Senate Finance Committee on Thursday, Sen. Lloyd Bentsen, D-Texas, its chairman, complained of "the kind of vacillation that we've seen from the president."

He accused Bush of changing his own plan this week, saying, "And for all we know there are going to be more changes to come in the days ahead."