Tobacco Tax Cuts

Adding Tax Cuts to Tobacco Bill May Draw Conservatives Support By JEFFREY TAYLOR And GREG HITT Marrying Tobacco and Tax Relief cost $16.8 billion over five years. Democrats maintain that the cost must Staff Reporters of THE WALL STREET JOURNAL Marriage-penalty relief proposed by GOP Sen. Phil Gramm as part of Senate tobacco bill: WASHINGTON-The move to link to- be lower to avoid hurting antismoking pro- bacco legislation and tax cuts could put in Creates a new deduction from gross income designed to dilute the impact of the grams. Senate Democratic staff members place the elements for the biggest legisla- so-called marriage penalty. The full impact of the deduction is phased in over 12 years. met late yesterday to discuss a proposal by tive compromise of the year. Mr. Daschle that would provide about $10 An amendment sponsored by Republi- Benefits two-income couples earning up to $50,000 a year. billion in marriage-penalty relief over five can Sens. Phil Gramm of Texas and Pete At 1998 levels, the proposal, if fully effective, would create a $3,400 deduction from years, aides said. Domenici of New Mexico would use to- gross income. For couples in the 15% tax bracket-which make up the bulk of those The Clinton administration estimates bacco money to eliminate the so-called targeted by Sen Gramm-that translates into a $510 tax break. the McCain bill would bring in about $65 THURSDAY, 4, 1998 THE WALL STREET JOURNAL marriage penalty for many moderate- to billion over five years. The bill allocates $3 low-income couples. Senate Minority Source: Senate Finance Committee and Senate Budget Committee. billion to veterans, about $13 billion for Leader Thomas Daschle of South Dakota health programs, about $13 billion for re- and the tobacco bill's author. GOP Sen. bacco bill palatable," he said. Gramm seized on this week to shift the pro- search, $26 billion for states, and $10 billion John McCain of Arizona, are trying to work But adding a tax cut could soften con- posal's total cost into the next century. He out a scaled-down version of the Gramm- servative opposition. Senate Majority had initially proposed to make the deduc- for tobacco farmers. Any tax relief would Domenici proposal that would be accept- Whip Don Nickles of Oklahoma, one of the tion effective this year. take away from one or more of those prior- bill's staunchest opponents, said mar- ities. able to the White House and public-health At 1998 levels, the deduction, if fully ef- riage-penalty relief "would make a bad bill fective, would be valued at $3,400. For cou- "The public-health community doesn't groups. While the effort is still at an early stage, better. The marriage penalty is a tax- ples in the 15% tax bracket, the bulk of object to Congress addressing a marriage- a compromise on tobacco that includes a code quirk that forces millions of dual-in- those targeted by Sen. Gramm, that trans- tax penalty," said Matthew Myers of the tax cut could give conservatives in both the come couples to pay higher taxes than they lates into a $510 tax benefit, according to Center for Tobacco-Free Kids. But it does Senate and the House a reason to support would if they were single. aides familiar with the plan. Phasing in the object if this effort diverts such substantial the sweeping tobacco legislation. And it In the House, linking tobacco and tax deduction would diminish the tax benefit in resources as to undermine public-health would represent an important step toward cuts could prove particularly effective if the short run. The Gramm proposal would programs.' the kind of political trade-off needed to en- the tobacco bill, as appears more likely, be- comes the chief vehicle this year for tax re- sure support across the political spectrum: lief. combining the election-year interests of both parties. Other Issues Remain Unsettled White House Softens Opposition To be sure, many issues beyond the marriage penalty must still be worked The White House was initially reluctant through, such as a contentious proposal to to add a tax cut to the bill but has softened toughen industry penalties for failures to its stance at the urging of Mr. McCain and reduce smoking among youths. And al- Senate Democrats. Antitobacco lawmak- though Senate Majority Leader Trent Lott ers and public-health advocates say they has suggested that the Gramm amend- could accept a tax cut if funding for anti- ment would bolster support, a spokes- smoking programs is protected. woman for the Mississippi Republican cau- "The important thing is to get the Mc- tioned against placing too much impor- Cain bill passed," said David Kessler, for- tance on the initiative. mer head of the Food and Drug Adminis- Democrats, however, were surprised at tration. "If this is what it takes to shore it the extent to which Sen. Gramm aimed his up, it's not a deal-breaker.' proposal at low-income families. Senate conservatives abhor the $1.10-a- The Gramm proposal would benefit two- pack price increase for cigarettes in the income couples earning as much as $50,000 bill, and even the addition of a tax cut a year, a threshold that would be annually won't persuade many of them to vote for it. adjusted for inflation beginning in 1999. Sen. Gramm said he is unlikely to vote for The measure would create a new tax de- the bill even if the Senate adopts the mar- duction from gross income designed to di- riage-penalty relief, a view echoed by GOP lute the impact of the marriage penalty. Sen. John Ashcroft of Missouri, a presiden- The full benefit of the deduction would be tial hopeful. "I don't think it makes the to- phased in over 12 vears. a step Sen.