Online NewsHour: --June 10, 1997

GOP TAX CUT CHALLENGED

JUNE 10, 1997

TRANSCRIPT

The President won't support a proposed $85 billion net tax cut because, he says, it violates the terms of the balanced budget agreement. Treasury Secretary Robert Rubin and Bill Archer (R-TX) discuss.

A RealAudio version of this NewsHour segment is available.
June 10, 1997:
Treasury Secretary Robert Rubin discusses the President's challenge to the GOP tax cut proposal.
June 9, 1997:
Congress investigates the fairness of estate taxes.
April 16, 1997:
In an Online NewsHour Freshman Forum, Reps. Pappas and Tauscher discuss congressional tax planning.
October 16, 1996:
An online forum with the Reps. Archer and Rangel of the House Ways and Means Committee.
October 10, 1996:
Paul Solman reports on the Republican and Democratic economic plans.
Browse The Online NewsHour's congressional coverage.
OUTSIDE LINKS
Visit the House of Representatives Homepage.

JIM LEHRER: The Archer tax cut proposal. It has several major components, from a child tax credit to reductions in the capital gains and estate taxes. We have back-to-back interviews about it with the author, House Ways and Means Chairman Bill Archer of Texas, and with Treasury Secretary Rubin. We go first to Congressman Archer, who was interviewed by Paul Solman of WGBH-Boston this afternoon.
PAUL SOLMAN: Chairman Archer, welcome.
REP. BILL ARCHER, Chairman, Ways and Means Committee: It's good to be with you.
PAUL SOLMAN: You've introduced this proposal as sort of a cradle-to-grave tax package, where it's going to be way too complicated to get in all the provisions, but take us through the highlights, if you will. Start with the cradle. That's the child credit, right?
REP. BILL ARCHER: The biggest component of the entire bill, which concerns about 60 percent of the tax relief, is the $500-per-child tax credit which, by the way, is limited to families that are under $110,000 in annual income. So it in no way benefits the rich, rich people of the country. And the withholding tax can be reduced in 1998, so people see the benefit of it in 1998.
PAUL SOLMAN: And what's the economic rationale for that?
REP. BILL ARCHER: Well, there's--we need to have relief for families so that they have the economic wherewithal to rear their children. A lot of the problems in families today start out economic, and then they develop into other characteristics. The personal exemption has not kept pace with the rate of inflation, and even this won't completely overcome that. But it is a major first step.
PAUL SOLMAN: But it's not a pro-growth strategy in and of itself. I mean, it's not targeted to--
REP. BILL ARCHER: Well, there are other parts of the package that will help growth.
PAUL SOLMAN: No. I just meant the child credit.
REP. BILL ARCHER: All right.
PAUL SOLMAN: Education. That's a tax credit?
REP. BILL ARCHER: We have a combination of tax credits and tax deductions. There is a piece of it that relates to the Hope Scholarship the President has recommended, which is a tax credit for people in their first two years of college, and then there is an incentive by tax deduction for people who save in order to put aside money that will take care of their children's education when they reach that age. And the total of that component is $31 billion over five years.
PAUL SOLMAN: And so now if it's my kid, I get $1500 per kid tax credit for two years?
REP. BILL ARCHER: For the two years.
PAUL SOLMAN: And then I get $10,000 deduction--
REP. BILL ARCHER: In the event that you anticipated in a state-run educational program, or if you have started to put aside your money early in the child's life, then you have the ability to see that grow without tax on the inside build-up so you have a tax incentive to provide ahead of time for your children's college education.
PAUL SOLMAN: And again, the economic rationale here?
REP. BILL ARCHER: Well, the economic rationale is that we believe that our educational system needs to be upgraded, and that these people have to have more affordability to education, and as a result, more affordability in the way that we can help to the tax code, then, of course, we're going to have a better educated society.
PAUL SOLMAN: All right. So now we're getting a little older. It's the grown-up years. And here the key is capital gains tax cut.
REP. BILL ARCHER: And also IRA's, expansion of IRA's so people--
PAUL SOLMAN: IRA's.
REP. BILL ARCHER: Yes. Individual Retirement Accounts, so that people have the opportunity once again to save in their middle income years for their ultimate retirement, and the capital gains relief which protects the capital savings of people from invasion and destruction by federal tax policy and that is all going to be helpful to people from a savings standpoint.
PAUL SOLMAN: Now, how do the capital gains work? Right now, your own tax up to 28 percent of any capital gain you make.
REP. BILL ARCHER: Right.
PAUL SOLMAN: And your--
REP. BILL ARCHER: Under my proposal the maximum tax will be 20 percent on any--on the sale of a capital asset, and it will only be 10 percent for those people who earn $41,000 a year or less.
PAUL SOLMAN: That's couples.
REP. BILL ARCHER: That's families. That's correct.
PAUL SOLMAN: Individuals, it's like $25,000/$26,000 a year.
REP. BILL ARCHER: And so a family that has $41,000 or less in income will pay only 10 percent on their capital gains. That is to help the lower income people. Five million Americans are in that category. Two million of them are senior citizens who will end up paying only 10 percent capital gains tax when they sell their assets.
PAUL SOLMAN: So practically speaking, when you say sell an asset, like what?
REP. BILL ARCHER: Well, whether it's a stock or a bond, primarily which are what people have invested in, or it could be real estate.
PAUL SOLMAN: And what's the economic idea behind the idea--behind cutting capital gains?
REP. BILL ARCHER: In order to have better jobs and more jobs, you have to have capital investment. That means you need capital savings. If the federal government keeps reaching in and pulling out the capital savings of the people and converting it into consumption, then we have less to build job-creating mechanisms. So the capital gains tax clearly is going to help the economy and help job creation.
PAUL SOLMAN: Do you worry at all that when you're giving preferential treatment to capital--capital gains--as opposed to labor, that you're not encouraging people to work more, and that is if you--
REP. BILL ARCHER: No, absolutely not, because the only way people can improve their standard of living is to increase productivity. And the only way you can increase productivity is to have more capital investment. Capital is the seed that makes the plant grow, that benefits everybody. And it's very, very important that the government does not reach in and take that all the way, whether it's through the capital gains tax or the death tax; that simply by death you trigger a tax that destroys small businesses, that takes capital brings it to the federal government, converts it into consumption, so that capital is no longer available to create jobs.
PAUL SOLMAN: Now, another aspect I read of the capital gains proposal is that capital gains be indexed. Would you explain that.
REP. BILL ARCHER: Yes. Support of the proposal is that the cost basis of capital gains will be indexed for inflation after the year 2000. And that means that future generations in the next century will not have their capital savings taxed when the gain is only inflation.
PAUL SOLMAN: So, in other words, the--how does that actually practically work? What is indexing, if you could--
REP. BILL ARCHER: Well, if you buy an asset, whether it's a stock or a bond, or you invest in real estate, and let's say you invest $1,000, and then let's say inflation is 100 percent over 10 years, then $2,000 at the end of the road in a sale would not generate any taxable income because your $2,000 is worth exactly what your $1,000 was when you invested. You eliminate inflation from taxes. Today, in that same incidence you are going to have a tax on $1,000. And yet, you gained nothing in real terms.
PAUL SOLMAN: And there's the one-time house sale.
REP. BILL ARCHER: Yes. And that's going to be highly beneficial to homeowners in the country. For singles, you will be exempt from capital gains. That is a zero capital gains up to $250,000 and for married couples up to $500,000.
PAUL SOLMAN: All right. So we've got �em from cradle. We're almost to grave, so grave is the estate tax.
REP. BILL ARCHER: Yeah. Grave is the estate tax which I already mentioned which today is so punishing simply triggered by death. It's called a death tax. And it destroys what has already been taxed once, takes away jobs that are created by family businesses and family farms, and really is an inappropriate tax.
PAUL SOLMAN: But now--
REP. BILL ARCHER: We raise the $600,000 exclusion to a million dollars, and then if you have a family farmer business in order to keep you from having to sell that if it's over a million, you have 24 years to pay your tax without interest.
PAUL SOLMAN: So currently, it's $600,000 is exempt from federal taxes.
REP. BILL ARCHER: That is correct.
PAUL SOLMAN: Per person, when a person dies.
REP. BILL ARCHER: That is correct.
PAUL SOLMAN: I thought you had wanted to get it to a million dollars a lot quicker than this proposal, which is over 17 years.
REP. BILL ARCHER: My ultimate goal is to abolish the death tax. It's an unfair tax, and it's something that we ought to do away with. But this is the most we're going to be able to do in this bill with the limits of the overall revenue constraints.
PAUL SOLMAN: So you just had to give up your dream on this particular one.
REP. BILL ARCHER: Until a little while later.
PAUL SOLMAN: All right. What about tax increases? I mean, one thing that's received a lot of attention today is the proposal to tax native American gambling and other establishments on reservations or other commercial establishments.
REP. BILL ARCHER: Well, Indian operations are growing by leaps and bounds, and they're competing with people across the street who pay taxes. And that's an unlevel and unfair playing field. And we think as they begin to grow in gambling and other activities that compete with taxable entities that they should pay taxes too. That's only fair.
PAUL SOLMAN: But what about ending the tax break on ethanol? That's also gotten a lot of--
REP. BILL ARCHER: Well, ethanol is a tax subsidy put in in the 70's, an artificial shoehorning of corn taking the best value of corn, which is to feed people, and converting it artificially into gasoline, and then not having the corn to feed people and animals in a world that is hungry. This makes no sense. The taxpayers in this country are subsidizing that 54 cents a gallon when the market price of a competitive product is less than 40 cents a gallon. The taxpayers should not be spending money for this.
PAUL SOLMAN: How tough is it to figure out what's going to happen when you try to write some particular provision?
REP. BILL ARCHER: Well, that's the difficulty. It's like trying to squeeze a EE foot into a AA shoe. And it is not easy, and there are a lot of people now who are not necessarily ebullient about it because they didn't get as much as they hoped for. But this is the first step and this is a tax relief with a balanced budget. And the American people are getting something they would not have expected until we got a Republican majority in the Congress.
PAUL SOLMAN: Okay. Well, Chairman Archer, thanks very much.

Program
Support
From: