Tax Help Urged for Middle Class : Rostenkowski Says It Needs ‘Greater Break’

Tax reform legislation should offer a “greater break” for middle-income Americans, Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, said Sunday, and he warned that enthusiasm for reform could disappear during weeks of tedious congressional hearings.

While praising President Reagan for taking the lead in offering a new tax code, Rostenkowski made it clear that he hopes to alter the Administration proposal significantly.

“We’re here to try to come to the center and get people’s support,” Rostenkowski said during an appearance on ABC-TV’s “This Week With David Brinkley.”

Congress should “target a greater break for those persons in the middle-income” group, he said. “They’re the ones that spend the money.”

Rostenkowski said he is concerned about the President’s decision to allow low tax rates for profits on investments, so-called capital gains enjoyed primarily by upper-income taxpayers. He also said he believes that the Administration has made too many concessions to independent oil and gas producers by agreeing to retain some special tax provisions.

‘Great Many Arguments’

As Congress tries to rewrite the tax code, Rostenkowski said, “there are going to be a great many arguments made” about the treatment of special tax preferences.

The Reagan tax plan would most benefit Americans at either end of the income scale. Persons earning less than $20,000 a year would receive an 18% cut, and those making more than $200,000 a year would get a 10% cut. For the broad range of middle-class taxpayers earning between $20,000 and $50,000 a year, the tax savings would be about 7%.

Secretary of the Treasury James A. Baker III, appearing on the same program, defended the fairness of the Administration’s plan, saying it would bring tax relief to all income classes.

The task ahead of Congress, reforming the 10,000-page tax code, “is a giant operation,” Rostenkowski said. Noting that congressional committees will conduct 2 1/2 months of hearings on tax reform, he said: “I just hope we can keep the people’s commitment and response as generally high as it has been.”

Three Tax Brackets

The Administration plan would scrap the current system of up to 15 tax brackets, ranging from 11% to 50%, in favor of a three-tier structure, at 15%, 25% and 35%. The personal exemption, now $1,040, would be raised to $2,000.

The plan is intended to rearrange the tax system while still collecting the same amount of revenue. Thus, the deep cuts in tax rates and the increase in the exemption are possible only if some significant deductions are eliminated or curtailed.

The most controversial such change in the Reagan plan would be elimination of the deduction for state and local income, sales and property taxes, a particularly important deduction for taxpayers who itemize in such high-tax states as California and New York.

“We have more homeless, more elderly and more sick,” said New York Gov. Mario M. Cuomo, who also appeared on the Brinkley program. “We have a high tax in New York because we have a disproportionate number of problems. We’re not luxuriating in New York state. We’re taxing ourselves because we have needs.”

Compromise Ruled Out

However, Baker insisted that it is unfair for 35 states to subsidize the high-bracket taxpayers in 15 high-tax states. The Treasury secretary said that “it’s a pure fairness issue” and ruled out any compromise on the subject. Abolishing the deduction for state and local taxes would bring the Treasury an estimated $40 billion by 1990, a significant amount of the revenue needed to offset the loss from cutting tax rates.

Without abolishing that deduction, “I don’t think you’ll have tax reform,” Baker said. “You’re just not going to find the revenue elsewhere.”

The argument over deductions, symbolized by the dispute between Baker and Cuomo, is the kind of issue that will preoccupy the House Ways and Means Committee and the Senate Finance Committee as they strive to write a tax reform bill.

Gephardt’s View

“The tension between loopholes and rates is the whole business of tax reform,” said Rep. Richard A. Gephardt (D-Mo.), a leading Democratic proponent of tax reform, appearing on NBC-TV’s “Meet the Press.”

Gephardt said the Reagan tax program has “a lot of merit” but insisted that his own proposal, offered in conjunction with Sen. Bill Bradley (D-N.J.), would offer a better deal for middle-class taxpayers. The majority of the American people would be taxed at a low 14% rate under the Bradley-Gephardt program, Gephardt said.

“It is conceivable and probable” that Congress can approve a tax reform bill this year, the Missouri congressman said. But he predicted that the process would result in the “biggest political brawl Washington and the country have ever seen.”