Why Big Tax Cuts Prove so Elusive On Capitol Hill

Republicans on both sides of Capitol Hill say they want to give Americans another tax cut in 1999. But disagreements between the House and Senate GOP over how much money to send back to taxpayers make any additional refund increasingly unlikely.

Gumming up the works are different House and Senate election calculations, the uncertainty of the new politics of surplus, and disagreements over how best to preserve and reform Social Security.

The Senate budget proposal calls for a $30 billion trim in taxes over five years, while the House version foresees a $101 billion reduction. But new projections by the Congressional Budget Office that the federal surplus will hit $1.6 trillion over the next 10 years have House conservatives chomping at the bit to cut taxes even more.

House Budget Committee chairman John Kasich (R) of Ohio now proposes cutting taxes $167 billion over the next five years and $700 billion over the next decade.

At the same time, Representative Kasich would use $338 billion of the surplus over five years and $700 billion over the decade to pay down the national debt - much of which is owed to the Social Security trust fund.

GOP senators, led by budget chairman Pete Domenici (R) of New Mexico, want to rein in the House thoroughbreds. They're working on their own plan to "fence off" Social Security funds from the rest of the budget so they cannot be used for other purposes. The goal, Senator Domenici says, is "to remove from control of the Congress these surpluses so that they won't be spent." That would mean smaller tax cuts.

Observers believe the dispute will block passage of any further reduction for next year. "I think you'll get a bill passed by the House and going no further," says Stan Collender, chief of the federal budget consulting group at Fleishman-Hilliard Inc. in Washington.

Complicating the task is the United States government's "unified budget." Social Security payroll taxes are lent to the government by investing them in Treasury bonds, helping to cover the deficit. Thus, while the Congressional Budget Office estimates this year's surplus at $63 billion, if Social Security funds were withdrawn from the calculation, the government would be running a $41 billion deficit.

'THERE really isn't a surplus if you consider Social Security an obligation that has to be met," says Michael Ettlinger of the liberal group Citizens for Tax Justice, which opposes reducing taxes next year. "If you go spend it in tax cuts, it's not going to be there when we need it in 10 or 20 years."

Knowing the public's keen desire to preserve the Social Security safety net for retired people, Democrats are using just such logic to attack the House GOP plan. President Clinton last January proposed that any surplus be held to strengthen Social Security until a consensus is reached next year on a long-term fix. Senate Republicans are inclined to agree.

House Republicans, however, say they are doing more to protect the retirement-supplement program than Democrats ever did. "The first thing we do is we take every dime's worth of Social Security tax receipts and we fence them off for Social Security," says majority leader Dick Armey (R) of Texas. "In the last 10 years that the Democrats were in the majority in this body they actually spent $1.1 trillion worth of Social Security taxes on other social-welfare programs. This is a big, big step in the direction of saving Social Security."

But budget rules require that any tax cut or spending increase be paid for by offsetting spending reductions or revenue increases. Otherwise the rules trigger automatic spending cuts, including a small percentage of Medicare funds. That could open Republicans to revived Democratic charges that a tax cut "aimed at the wealthy" will hurt the health-care program for the elderly, Mr. Collender says. Republicans respond that they will change the rules to prevent that.

Senate minority leader Tom Daschle (D) of South Dakota isn't pulling any punches. "[Representative Kasich] really has one of two choices," Senator Daschle says. "He can dramatically reduce the Social Security trust fund and pay for the tax cut directly out of Social Security, or he's going to have to gut education, gut child care, gut the very domestic investments that Republicans and Democrats agreed to just last year."

But House GOP leaders are convinced they have a winner. "The question is whether the House Republicans can light a fire under their Senate colleagues," says Marshall Wittmann, who watches Congress from the conservative Heritage Foundation.

Mr. Wittmann says House Republicans, who control the chamber by a slim 11-vote margin, need the issue to motivate the conservative voters they need in next fall's elections, in which turnout is expected to be the key to victory. Even if the bill dies in the Senate, the House must make the effort, Wittmann says: "Nothing so excites the grass roots as the prospect of tax cuts."

Such considerations are not an issue in the Senate, where only one-third of members are up for reelection next fall and Republican control is not in doubt. Furthermore, there's no guarantee the president will sign whatever final bill might emerge from Congress.

Despite the obstacles, Senate majority leader Trent Lott (R) of Mississippi says he remains optimistic: "We're going to have more tax cuts this year."