They're Democrats. They're Talking Tax Cuts. What Gives?

In the lexicon of the Clinton Administration, not all tax cuts are created equal. There are nice cuts--the President's limited package of targeted breaks for retirement savings, college tuition, and health care. And there are naughty ones--Republicans' $800 billion pastiche of tax reductions, many of which favor the wealthy. The latter, the President warns, amount to "risky tax schemes" that imperil seniors' Medicare and threaten the economy.

But even as the House Republican leadership on July 21 struggled to corral the votes to pass its own tax plan, momentum for a scaled-down tax cut, favored by many Democrats and moderate Republicans, is building. Worried that Republicans may score in 2000 by backing tax cuts for debt-strapped Americans, Democrats are rolling out proposals that are more generous than Clinton's plan for $250 billion in reductions over 10 years.

True, polls show no new groundswell for tax cuts. But the combination of election jitters and a projected $1 trillion surplus has Dems rushing to get out front. In the current environment, "Cutting taxes is hardly what I would call an outrageous, irresponsible move," says Senator Bob Kerrey (D-Neb.).

Kerrey and Senator John B. Breaux (D-La.) are lining up support for a $500 billion package likely to include broad-based tax relief as well as such GOP ideas as relief for two-income filers, estate-tax reductions, and bigger savings incentives. With GOP moderates fretting that a megacut is fiscally irresponsible, Breaux is eyeing a compromise. So far, at least two GOP Senators--Rhode Island's John H. Chafee and Vermont's Jim Jeffords--have expressed interest. But one White House aide calls the Breaux proposal a budget-buster.

Other Senate Finance Committee Dems, led by New York's Daniel P. Moynihan, are pushing a $290 billion package. The plan features scaled-back versions of Breaux's targeted cuts, and replaces a rate cut with a big increase in the standard deduction. Raising the standard deduction--now $7,200 for joint filers--by $4,350 would most help lower-income Americans.

Even House Democrats, traditionally hostile to tax cuts, are jumping aboard. Their $250 billion plan, crafted by House Minority Leader Richard A. Gephardt (D-Mo.) and senior Ways & Means Democrat Charles B. Rangel of New York, keeps Clinton's price tag but downplays his new retirement savings accounts. Instead, they stress targeted breaks--for two-earner married couples, parents with kids in college, and buyers of health insurance. Conservative Dems are delighted. "To Mr. Gephardt's credit, he has been very receptive," says Representative Dennis Moore (D-Kan.), a leader of the party's tax-cut forces.

GOOD POLITICS. What accounts for the change of heart? Money, for one thing. Says House Ways & Means Committee Demo-crat Richard E. Neal of Massachusetts: "What's changed is the sheer magnitude of the surpluses. That really allows us to discuss targeted tax cuts."

It's not such dumb politics, either. With GOP front-runner George W. Bush expected to call for slashing marginal rates, Demo-crats could use a preemptive strike now. "If Republicans want to run on taxes in 2000," says Democratic consultant Dane Strother, "let's take the issue off the table."

Does that mean your goodie check from Uncle Sam is in the mail? Not exactly. The two parties would have a tough time agreeing on specifics, and the GOP is deeply torn over the size of a cut. Besides, the President still vows to veto any tax bill unless Congress first deals with Social Security and Medicare. All that said, the Democrats' new willingness to get into the tax game has brightened prospects for a relief package next fall--and could help remake the party's image. Is America ready for the "tax-cut and spend" Democrats?