BACKGROUND: Republicans, perennial champions of lower taxes, have developed a plan to balance the budget over seven years that would include major tax cuts for most Americans. Earlier this year as part of the "Contract with America" the House voted for a $350 billion cut, but leadership negotiations with the more moderate Senate yielded a target of $245 billion. Tax cuts are included -- along with Medicare and Medicaid -- in the major reconciliation bill that finances federal benefit programs.

STATUS: The House passed its larger tax reduction earlier this year. This summer House and Senate leaders agreed to the $245 figure. The Senate Finance Committee is currently working on its version of tax legislation.

KEY PLAYERS: Sen. William V. Roth Jr. (R-DE), has replaced Sen. Bob Packwood (R-OR) as Senate Finance Committee chairman. He is not considered as politically adroit as Packwood, and may have trouble corralling votes on his committee. Tax-cut hawks like Sen. Phil Gramm (R-TX) and freshman House members have applied consistent pressure for a larger reduction. The wavering Senators are Alfonse D'Amato (R-N.Y.), Alan Simpson (R-WY) and Larry Pressler (R-S.D.).

PRO: The tax burden on the average American is too heavy and unnecessary, because it funds wasteful and needless government spending that is being weeded out by Congress. Lower taxes also boost the economy as a whole, spreading economic benefits in the form of jobs and wages to all Americans.

"We signed a contract with the American people pledging to reduce the size of governent and let the American people keep more of their hard-earned dollars. With this bill, we are again keeping our promise. Our tax cuts can be summarized in three words: family, children, jobs. Our tax relief package will help America's families, and it will create better jobs for those families to head off to every morning ... Democrats think tax money is their money. Republicans think tax money belongs to the taxpayers." -- Rep. Bill Archer (R-TX)

CON: Slashing social spending and reducing funding for vital government agencies such as the Environmental Protection Agency while simultaneously cutting taxes is simply indefensible. When it comes to balancing the budget, the Republicans are exhibiting their preference for big business and the rich over the poor and disadvantaged.

"Republicans have put the cart before the horse. First they decided how much savings they needed to pay for their $245 billion tax cut and then they devised a policy to meet their budget target. I believe Medicare and Medicaid should not be used as a piggy bank to fund tax breaks for the wealthy." -- Sen. John Breaux (D-LA)

WHAT'S NEXT: The Senate Finance Committee, and then the full Senate, must pass that chamber's tax package. Then House and Senate will go to conference, where there may be differences to iron out, as some influential Republican Senators are hedging their support for the $245 billion figure.

INSIDE SCOOP: In recent years few issues have defined the differences between Democrats and Republicans like taxes. The "supply-side" and "trickle-down" theories popularized during the Reagan presidency are still supported by many Republicans, who believe that lower taxes boost the economy. Democrats feel the rich should carry a much greater share of the tax burden than Republicans would require, and paint the GOP as the friend of big business and the wealthy. The tax issue is particularly sensitive now; many new members of Congress campaigned on an anti-tax platform, painting President Clinton and his party as tax-and-spend liberals. Even Clinton has proposed his own tax reductions, and 1996 presidential candidates like Gramm have put the issue at the core of their platform.