SENATE OKs CUT IN TAX FOR COUPLES

WASHINGTON -- The Senate approved a tax cut for low- and middle-income
couples by using revenue from a proposed cigarette tax, giving national
tobacco legislation some much-needed momentum late Wednesday.

The measure would allow married couples who make less than $50,000 to deduct
an additional $3,300 from their income before they calculate their taxes.
This would give an average of $1,400 in tax relief for almost 31 million
families.

Republicans said the tax cut is intended to offset the $1.10 per pack
increase in the tobacco bill, which would disproportionately affect low- and
middle-income smokers.

``It does not eliminate the marriage penalty for all Americans,'' Republican
Sen. Phil Gramm of Texas, the author of the tax cut, said of his proposal.
``It is a major step in that direction.''

About one of every six federal tax returns is filed jointly; according to
some estimates, the ``marriage penalty'' averages $1,400.

While the geographic information available on tax returns is sketchy, it is
clear that few places in the country would be less affected than Silicon
Valley. In 1996, the average adjusted gross income on tax returns filed from
Santa Clara County was $55,007 -- ranking the county 36th of 3,140 counties
in the nation. Those statistics lump joint filers and individual filers
together; there are no numbers available that look at the two groups separately.

The provision also contains a tax cut for the self-employed. They would be
able to deduct the full cost of their health insurance from their pre-tax
income beginning in 1999.

The tobacco bill had been stuck in the Senate for more than a week because
of partisan skirmishing over the size of the tax cut and how to spend the
estimated $516 billion the tobacco tax will generate over 25 years.
President Clinton helped break the jam Tuesday by signaling he was willing
to compromise on some Republican proposals to get the bill passed.

A starter

Gramm promised the marriage penalty would be repealed for everyone by the
end of the year, but until then, ``this allows us to do it immediately for
those in the moderate income area that pay the bulk of the cigarette tax.''

The marriage penalty tax cut, coupled with anti-drug provisions the Senate
added to the bill Tuesday, may make tobacco legislation easier for moderate
Republicans to swallow because it would then include two bedrock GOP
policies: tax cuts and tough drug enforcement. However, a host of tough
issues remain, including how to help tobacco farmers who lose business and
how much to pay the lawyers who have sued the tobacco industry.

The House has yet to take up tobacco legislation. House GOP leaders said
Wednesday that they will soon introduce a more modest tobacco bill than the
Senate's.

The so-called marriage penalty exists because of progressive tax rates. An
individual earning $22,000, for instance, would pay taxes at a 15 percent
rate. A spouse earning the same amount would push the couple's income into
the next bracket. Filing a joint return, their taxable income would be
higher. If they were unmarried and filing separately, they would each pay at
the lower rate.

The tobacco bill would give states nearly 40 percent of the cigarette tax
revenue, and divide the rest among research and public health programs and
assistance to tobacco farmers.

But efforts by Republicans to tap the revenue stream for programs that have
little or no connection to smoking and health -- such as for the marriage
penalty tax cut -- could change those targets.

The Gramm tax cut would cost almost $113 billion over 25 years, with a third
coming from the tobacco tax revenue and the rest from the budget surplus.
Democrats objected because they want to keep the tobacco money for health
programs. They also support Clinton's plan to set aside the budget surplus
to save the soon-bankrupt Social Security. They equated the marriage penalty
tax cut to a raid on Social Security.

The anti-drug measure passed Tuesday would swallow another $15 billion of
tobacco tax money.

``All of a sudden, the question has to be asked, where is the money to stop
kids from smoking?'' Sen. John Kerry, a Massachusetts Democrat leading his
party's support of the tobacco bill, said during the marriage penalty
debate. ``Where is the fundamental notion that this bill is directed at
children?''

The key vote was an attempt to kill Gramm's amendment -- a move that failed
48-50. The vote was largely along party lines, with five Republicans voting
with Democrats to kill the measure, John Chafee of Rhode Island, Susan
Collins of Maine, Jim Jeffords of Vermont, Connie Mack of Florida and
Olympia Snowe of Maine. One Democrat, Ernest Hollings of South Carolina,
voted with the Republican majority. The Senate then approved Gramm's
amendment by voice vote. A Democratic alternative was killed 55-43.

Not a simple idea

Eliminating the marriage penalty is not as simple as Gramm's plan, according
to some experts.

``There are both bonuses and penalties in the tax code,'' said Janet
Spragens, who teaches at the American University law school and is director
of the school's Federal Tax Clinic. ``It's not just like a line item that
can be repealed.''

Some married couples benefit from the tax code and would be rewarded again
by Gramm's additional deduction, she said.

Take the case of an individual earning $50,000 who gets married and whose
spouse either doesn't work or earns a small salary. With deductions and
exemptions, the couple would pay less tax filing jointly than an individual
earning the same $50,000 filing as a single taxpayer.

Checked-by: Melodi Cornett