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Senators balk at tax compromise

The Republicans' giant compromise tax package appears headed for certain passage in the House on Thursday, but it has run into trouble in the Senate, where moderate Republicans and centrist Democrats are unhappy with its size and tilt toward upper-income Americans.

On Wednesday, moderate Republican Sen. James Jeffords of Vermont and four centrist Democrats who helped pass the Senate's version of the Republican tax cut a week ago, signaled they were leaning against or opposing the final compromise reached late Tuesday.

While Senate leaders insist the measure will pass before Congress leaves this week for an August recess, three other moderates and conservative Sen. John McCain, R-Ariz., said they were greatly disappointed with the compromise and were unsure of how they would vote.

"They're setting themselves up to have Al Gore here to break the tie," warned Sen. Bob Kerrey, D-Neb., one of the four centrist Democrats who is switching his vote.

Although the broad outlines of the $792-billion tax plan were announced Tuesday night by House Ways and Means Committee Chairman Bill Archer, R-Texas, and Senate Finance Committee Chairman William Roth Jr., R-Del., the fine print began to surface Wednesday.

Those details highlighted the the Republicans' predilection for costly breaks for multinational corporations, real estate ventures and other special interests as well as for broad-based tax relief.

The GOP plan would cut all income tax rates by one percentage point, phase out the so-called marriage tax penalty, eliminate the estate tax, reduce individuals' capital gains taxes, enhance investments in IRAs and help defray the cost of education, health care and long-term care for the elderly.

It also devotes nearly a tenth of the $792-billion to shower favors on corporate America, most notably a provision worth $24-billion over 10 years that would benefit multinational corporations.

Since the mid-1980s, these companies have attempted to secure changes in the tax code that would allow them to allocate their worldwide interest deductions in such a way as to generate additional foreign tax credits _ and thereby trim their tax bills. The House version of the bill was far more generous to these companies than the Senate plan, and the House prevailed in final negotiations. The House also insisted on a break for foreign oil and gas income that would cost the Treasury more than $4-billion.

Among some of the other special targets: a repeal of a 10 percent excise tax on certain kinds of fishing tackle boxes; an increase in tax breaks for reforestation expenses incurred by timber companies; breaks for purchasers of nuclear plants aimed at the costs of cleaning up reactor sites; and a credit for electricity produced from poultry waste.

For Americans living abroad, the bill would exempt their frequent-flyer miles from airline ticket tax. The three-martini lunch made something of a comeback as the conferees agreed to gradually increase the deduction for business meals, from 50 percent to 60 percent of a meal's cost.

The compromise also would extend the research and development tax credit sought by high-tech businesses by five years, instead of the permanent extension they want.

The plan represented a melding of often conflicting tax policies and strategies, with the House prevailing in its insistence on a broad-based tax cut and reduction in the capital gains tax rate and the Senate having its way in beefing up proposals for health care and long-term care tax relief, education and an expansion of the Individual Retirement Accounts.

Roth, an ardent advocate of IRAs, succeeded in increasing the annual contribution limit from $2,000 to $5,000. And while he favored targeting the income tax relief to middle- and lower-income people rather than granting it across the board, he modulated the tax-rate cuts the House sought to grant to higher-income Americans.

"As far as the political solution on the tax rates, what they've come up with is an almost Solomon-like splitting down the middle," said J.D. Foster, executive director of the Tax Foundation, a conservative research group.

While the Republicans insist their plan provides something for just about everyone, the tax cuts are predicated on a gradual increase in the surplus and many of them will not be fully phased in until the ninth or 10th year of the overall plan.

President Clinton on Wednesday called the Republican tax cut "risky and plainly wrong" and pledged in the bluntest language he has used to date to veto any tax cut resembling the GOP's current plan.