WASHINGTON _ The on-again, off-again negotiationsbetween President Clinton and Republican Congressionalleaders suggest that there remains only a small possibilitythat a deal can be struck before the end of the year tobalance the federal budget by the year 2002. In addition,the level of acrimony between the Republican andDemocratic negotiators has doomed any possibility thatCongress will address capital gains and other taxlegislation his year.

"The White House and Republicans are comfortableabout making a deal [on capital gains] but the politicsbetween the two camps is so divisive that capital gains isdead this year," said Walter Moore, senior director,government affairs, at Genentech Inc., of South SanFrancisco, Calif.

Moore predicts that the partisans could agree "onsubstance" if they had "the political will to make a deal."

Lack of any political compromise on the budget alsodooms negotiations on about $245 billion in tax cuts. In aconcession to Republican deficit hawks, the parties hadagreed early on that tax cuts could not be addressed untilthe federal budget had been balanced. That put capitalgains legislation and the orphan drug tax credit as well asa proposal to stimulate venture capital sought by thebiotech industry on hold indefinitely, according toindustry sources.

The Biotechnology Industry Organization (BIO) andlobbyists for several of the large biotech firms withrepresentation in Washington had pushed for a capitalgains tax cut which would have spurred investment intechnology including biotech products. Also sought waslegislation to give biotech firms a tax credit to subsidizethe cost of development of orphan drugs.

The orphan drug tax credit would have givenmanufacturers a 50 cent refund for every dollar they spenton developing drugs to treat rare diseases. And the taxpackage would have made permanent the orphan drug taxcredit which expired last year.

While capital gains tax cuts were a priority for manybusiness interests, they were eclipsed in politicalpopularity by a Republican-backed proposal to givefamilies a $500 child care tax credit. Lack of political sexappeal for capital gains meant that any dollars madeavailable for tax legislation would be earmarked first forthe child care tax credit, said an industry lobbyist.

Congressional Republicans over the past monthcontinued to beat the drum for capital gains tax relief.Senate Republican Leader Bob Dole (R-Kan.) and severalfellow Republicans signed a letter on Dec. 7, 1995,reiterating their support for a capital gains provision inwhatever tax cut legislation emerged from Congress. Inaddition, 50 members of the 73 Republican Housefreshmen issued a statement in early December thatcapital gains tax cuts not be watered down.

While the Clinton Administration hinted throughout thepast several months that some form of capital gains taxcuts would be acceptable if the total loss to the Treasurywere pared back, it never revealed its position on theorphan drug tax credit sought by biotechnology firms.

Lack of a large constituency makes the smaller tax creditssought by BIO vulnerable to those bent on reducing theoverall size of the tax package. The tax break for venturecapitalists and tax credits for orphan drug developmentare also likely to fall prey to any efforts to find morerevenues, said John Staunton, an analyst with Citizens forTax Justice, a Washington interest group. n

-- Michele L. Robinson Washington Editor

(c) 1997 American Health Consultants. All rights reserved.