Panel Rejects Tax Increases : But Hikes Still Could Be Part of Deficit Package

The Senate Budget Committee Tuesday overwhelmingly rejected two proposals to raise taxes, but it left open the possibility that a tax increase may be approved in one of a series of deficit-reduction packages that will be presented to it today.

At the same time, the Reagan Administration staunchly reaffirmed its opposition to any tax hikes, with White House spokesman Larry Speakes telling reporters that President Reagan “is as strong as 10 pounds of onions on this.”

Senate Majority Leader Bob Dole (R-Kan.), issuing a statement from Geneva, where he is attending the U.S.-Soviet arms talks, agreed: “We have to keep our eye on spending cuts, and more spending cuts, until we have absolutely exhausted that option.”

However, the committee, continuing to resist cuts that Reagan has proposed in a variety of popular domestic programs, rejected his request to terminate federal revenue sharing this year. In addition, it chose to cut federal payroll costs by whittling down the work force by attrition, rather than imposing the 5% salary cut Reagan had asked.

The votes against increasing taxes confirmed that, just as committee members have been unwilling to cut domestic programs when asked to vote on them individually, they are unwilling to risk voter anger by approving a tax hike that stands alone. Thus, committee leaders said, the only remaining means of accomplishing significant deficit reduction is to provide the political cover of a vote on an overall package that includes both program cuts and tax increases, proposals for which will be presented to committee today.

Closing Loopholes

Both the tax plans rejected by the committee would have combined a minimum corporate tax with the closing of what the plans’ sponsors insist are loopholes. A plan by Sen. Howard M. Metzenbaum (D-Ohio) that would have raised $9.4 billion in new revenue next year failed, 16 to 4, and a more sweeping package presented by Sen. Ernest F. Hollings (D-S.C.) and aimed at raising $29 billion failed, 18 to 4.

Significantly, the idea of a tax increase received some signs of support from the Republicans, who hold a 12-10 majority on the committee. Three Republicans--Sens. Mark Andrews of North Dakota, Nancy Landon Kassebaum of Kansas and Charles E. Grassley of Iowa--abstained from voting on a proposal by committee Chairman Pete V. Domenici (R-N.M.) not to raise any new revenues. Nonetheless, it was approved, 12 to 7.

“I don’t think anything is ruled out,” Sen. Lawton Chiles (D-Fla.), the committee’s ranking Democrat, said after the votes. “The message was that clearly no one has a burning desire to jump out and raise taxes.”

Deficit reduction, he said, would have to combine a freeze on defense spending similar to one approved last week by the committee, a freeze on cost-of-living increases in a number of federal programs and new taxes.

Earlier Tuesday, the committee had rejected Reagan’s proposal to end the government’s general revenue-sharing program this year, a year ahead of schedule. Reagan has argued that, at a time of record deficits, the federal government cannot continue to share its revenue with local governments, many of which are running budget surpluses.

Criticism From Cities

The Administration proposal had drawn heavy criticism from cities and counties that have grown to depend on the no-strings-attached federal grants as an important supplement to their budgets. Los Angeles County, for example, has used the $83 million a year that it receives to fund health services.

Sen. J. James Exon (D-Neb.), sponsor of a proposal to allow revenue sharing to expire at the end of fiscal 1986, as scheduled, said that his plan amounted to “sending a message (to cities and counties that) you have one more year to get your house in order” but that it would not create the fiscal havoc of an abrupt termination. His proposal was approved, 13 to 9.

In other action, the committee approved cutting the federal civilian work force by 5% in each of the next two years, mostly through attrition, which generally exceeds 6% annually. The cuts, which would not affect postal workers or law enforcement officials, would reduce federal employment by an estimated 204,000.

Pay Freeze Backed

The committee voted also to freeze federal workers’ pay in 1986, rather than impose the across-the-board salary decrease that Reagan had asked. All told, the pay freeze and work force reductions would save an estimated $10 billion over the next three years.

When the committee finished reviewing spending programs--having last week decided to leave unresolved the important issue of denying Social Security cost-of-living increases for a year--it had cut spending by only half of the $60-billion target set by Domenici for fiscal 1986.