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Clinton Attacks Archer's Tax Plan

Tuesday, June 10, 1997

Deloitte & Touche OnLine

President Clinton and other Democrats attacked the tax proposal from House Ways and Means Committee Chairman Bill Archer, R-Texas, saying it does not go far enough to help poor Americans and that it would blow a hole in the federal budget deficit in the years beyond 2007.

"I have reviewed this plan and believe that in its present form, it does not meet the tests that I would hold myself to," Clinton said at a White House ceremony on education issues.

The administration’s chief congressional lobbyist, John Hilley, separately attacked Archer’s plan because of the harm it would do to the budget deficit in the years after 2007. Indexing the basis of capital assets and providing relief to corporations from the alternative minimum tax are particular provisions that Hilley opposed in an interview on MSNBC.

The estate tax provisions should be targeted more carefully toward small businesses and farms, Hilley also said.

House Minority Leader Dick Gephardt, D-Mo., also objected to curtailing the corporate alternative minimum tax. "If working families are expected to pay more than their fair share of taxes and get little in return for their hard work, it seems unfair at best that the wealthiest and corporate taxpayers get all the breaks," Gephardt said.

Rep. Charles Rangel, D-N.Y., who is the ranking Ways and Means Committee Democrat, is expected to propose an alternative tax plan when the panel meets June 11. The proposal almost certainly will fail, but should provide more clues about the Democrats’ concerns with Archer’s plan.

Rangel has suggested he is concerned about the long-term impact the proposal to index the basis of capital assets and other items would have on the budget deficit.

Clinton opposes education, child credits

Archer’s plan falls $13 billion short in the amount of education tax cuts agreed to in the balanced budget agreement between the President and congressional leaders, Clinton said.

Archer’s proposal earmarks $22 billion for education tax deductions, which is less than the $35 billion in education tax incentives called for by the agreement, Clinton added. The President is not counting the approximately $8 billion in education-related items, such as tax-favored education accounts, and the temporary extension of the Section 127 tuition exclusion, proposed under the chairman’s plan.

Clinton also criticized Archer’s proposal for cutting in half the Hope scholarship plan. Archer proposed giving students a 50% deduction for up to $3,000 in tuition and books, while Clinton offered a $1,500 credit. Students attending community colleges and other low-cost higher education institutions would be disadvantaged under the Archer plan, according to the President.

Clinton objected to the structure of Archer’s $500 per child tax credit, which he said should be refundable. "I think it ought to be refundable, so it’s fair to working parents with lower incomes," who could not enjoy both the full benefit of the earned income credit and the child credit. Similarly, Clinton criticized the treatment of the dependent care credit.

The version of the child credit in Archer’s proposal is less generous than it appears because families who qualify for the earned income credit will not receive the full benefit of the child credit. Also, for those who claim the dependent care credit, the child credit will be reduced by 50 cents for every dollar they receive of the dependent credit after the first year.

Clinton and other administration officials are attacking Archer’s plan on the grounds that it is not fair to average Americans. Many Democrats believe that the fairness issue is the GOP’s political weakness and they hope to get more for their constituents by calling the Republicans the political party of the rich.

Realtors object to recapture provision

The provision setting the recapture depreciation capital gains rate at 26% would cause problems for the realty industry, the politically influential National Association of Realtors said June 10.

"While NAR strongly supports lowering capital gains tax rates, we cannot back this plan because it is tainted with a painful change in the way investment real estate sales are taxed," NAR president Russell Booth said June 10.

Equal capital treatment should be given to real estate by maintaining the existing depreciation recapture rules, the realtors said in a press release.