Hostility to Tax Plan Shown as Hearings Open in Senate

Treasury Secretary James A. Baker III faced open hostility to the Reagan Administration’s tax revision proposal Tuesday as the Senate Finance Committee began what is expected to be at least three months of testimony on overhauling the current tax code.

“The best simplification this committee could do for the country would be just to adjourn,” Sen. Steven D. Symms (R-Ida.) complained.

Senate Republican leader Bob Dole of Kansas, a committee member, conceded that progress on tax revision could be slow. “Once the initial glow has faded,” Dole said, “there are a lot of questions this committee has to deal with.”

Warning of ‘Fiscal Disaster’

Meanwhile, Martin S. Feldstein, former chairman of President Reagan’s Council of Economic Advisers, warned that the Administration’s tax proposal could be a “fiscal disaster if tax reform became a deficit-enlarging tax cut.”

Feldstein, who left the White House last year after several disputes over Administration policy toward budget deficits, told the House Ways and Means Committee that the tax proposal “is at best revenue neutral and has a substantial risk of losing revenue.”

Other economists testifying before the House panel, which originates tax legislation, also expressed skepticism over the Administration’s contention that the tax plan would raise as much revenue as the current tax system. They contended that the package could exacerbate deficits that are now expected to remain larger than $170 billion annually well into the next decade, even if the package of spending cuts now working its way through Congress becomes law.

“I suspect that the President’s proposal is a revenue loser, particularly after 1990,” said John H. Makin, director of fiscal studies at the American Enterprise Institute.

But Baker, in defending the tax proposal to the Senate panel, insisted that Reagan’s plan would lose only $11.5 billion during the next five years, substantially less than 1% of the $4.7 trillion that the government estimates it will collect in total revenues during that period.

Contradictory Attacks

In grilling Baker, senators on the tax panel attacked the White House proposal on a wide variety of sometimes contradictory points.

Sen. William V. Roth Jr. (R-Del.) complained that the proposal “tends to soak the middle class,” but he worried also that the plan would be too generous to consumers at the expense of those who save.

Some senators argued that the plan would do little to help businesses facing the threat of foreign competition, but others suggested that individuals should receive a more generous tax break even if it means increasing taxes for corporations.

Most members of the Republican-controlled committee warned that they would attempt to restore certain tax breaks that would be eliminated by the White House package.

In particular, they criticized Reagan’s proposals to abolish the deductions for state and local taxes and for two-earner couples, to eliminate the investment tax credit and alternative energy tax credits and to tax growth in the cash value of insurance policies. But Sen. Bill Bradley (D-N. J.), author of a separate tax revision proposal, argued that the White House tax plan does not go far enough in eliminating special tax preferences. He told Baker that he would try to eliminate some tax breaks for the oil industry and wealthy investors.

Exemption Hike Opposed

Sen. George J. Mitchell (D-Me.) challenged Baker’s contention that the best way to help families living below the poverty line to escape income taxes is to increase the personal exemption from the current $1,040 to $2,000 next year.

Mitchell said that he would introduce a proposal to limit the increase in the personal exemption and grant a larger increase than Reagan recommended in the standard deduction, or zero-bracket amount, a proposal that would help only taxpayers who do not itemize their deductions. Mitchell said that his approach would concentrate tax relief more directly on middle-income and lower-income families than would the Administration’s plan.

Baker vigorously defended the Administration’s plan against the attacks. “We think our plan is very fair,” he said, pointing out that the majority of taxpayers at every income level would receive tax reductions and that the average tax cut would be 7%.