House Approves Extending Self-Employed’s Tax Break : Legislation: Bill would continue 25% deduction for health insurance costs. Senate Republicans, Democrats wrangle over spending cuts.

WASHINGTON —  The House approved a bill Thursday to help the self-employed buy health insurance while Senate Democrats and Republicans locked horns over spending cuts.

Before passing the bill, the House erupted into partisan argument over elimination of a provision that would have imposed a penalty on wealthy Americans who renounce their citizenship to avoid paying taxes. The penalty was omitted from the final bill, which was approved on a voice vote.

The measure would allow the self-employed to continue deducting 25% of their health insurance premiums from their federal taxes.

To help offset the costs of that deduction, the bill would eliminate a 17-year-old tax preference program that encourages broadcasters to sell radio and television properties to minority investors by allowing them to defer taxes on capital gains from their sales.

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Specifically targeted by the legislation was Viacom’s pending $2.3-billion sale of its cable systems to a minority-led partnership, a deal criticized by Republicans who charged that Viacom was using the minority buyers as a front to obtain a $660-million tax deferral.

The elimination of the minority-incentive program drew protests from Democrats when the bill first passed the House last month.

But the debate that preceded final passage Thursday was dominated by Democratic complaints that a House-Senate conference had dropped a provision that would have closed a tax-law loophole allowing wealthy Americans to avoid taxes by renouncing their U.S. citizenship.

The provision would have affected a relatively small handful of people--mostly foreigners who obtain U.S. citizenship, make their fortunes in this country and then move back overseas, giving up their citizenship to avoid paying capital gains.

Republicans said that the provision had been too hastily drafted and could discourage foreign entrepreneurs from immigrating to, or investing in, the United States.

But its omission from the final legislation still offered the Democrats an opportunity to complain that GOP tax and spending cut policies sre biased in favor of the rich.

“The Gingrichites want to put those at the top of the economic ladder in the first place and keep them there,” said Rep. Lloyd Doggett (D-Tex.). “Protection of the plutocrats is what the (GOP’s) ‘contract with America’ is all about.”

In the second day of debate over midyear budget cuts, Senate Democrats sought to restore $1.3 billion in proposed cutbacks for educational and child-care related programs included in a $13.4-billion package of spending reductions.

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With the possibility of a filibuster looming, GOP leaders threatened to keep the Senate in session all night, if necessary, to complete action before the weekend on the spending cuts, which were drafted to offset the costs of disaster aid to California and to help pay for deficit reduction.

The Clinton Administration strongly opposes the spending cuts and has hinted at a presidential veto--even though the Senate bill restores nearly $2 billion that the House voted to trim when it passed its version of the spending-cut package last week.

“To cut off aid to children, to cut off educational opportunities . . . is, as we say in South Dakota, eating the seed corn,” said Senate Minority Leader Tom Daschle (D-S.D.), who argued that the GOP cuts ultimately would cost the nation more than they save.

Democrats conceded that they lacked the votes to restore the cuts but they hoped to pressure the Republicans into a compromise by threatening to shower the bill with amendments.

Times staff writer Janet Hook contributed to this story.