Rostenkowski Says Reagan Tax Reform Is Still Alive but Faces Changes by Panel

Times Staff Writer

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), insisting that the “quest for tax reform is very much alive,” said Tuesday that his panel will change President Reagan’s tax proposal by cutting back on relief for business and the wealthy and providing greater benefits for middle-income families with two working parents.

In a speech before the National Press Club, Rostenkowski vowed to retain the two-earner “marriage penalty” deduction, which Reagan would abolish, and the child care credit, which he would convert to a deduction. He said that the Democratic-controlled committee is likely to modify Reagan’s proposal to eliminate the deduction for state and local taxes.

The wealthiest taxpayers, Rostenkowski suggested, would face a tax rate greater than 35%, the maximum in Reagan’s plan. And, he said, they should not expect Congress to enact Reagan’s proposal to cut the maximum tax rate on capital gains--profits from the sale of investments--from the current 20% to 17.5%.


White House Plan

Under the White House tax-overhaul plan, the current system of up to 15 tax brackets would be reduced to just three--a 15% rate on lower incomes, a 25% rate on middle incomes and a top rate of 35%--in a way that would cut taxes for most taxpayers. At the same time, dozens of individual and business tax preferences would be trimmed.

Rostenkowski blasted the Administration’s decision to abandon many of the features in last year’s Treasury Department tax proposal, particularly its agreement to give back $175 billion in depreciation benefits to business and $40 billion in tax breaks for the oil industry over five years without winning in return any “pledges of support for its generosity.”

Adding that sweeping reform of the tax code must remain revenue-neutral and avoid either adding or subtracting from the budget deficit, Rostenkowski argued nonetheless that a large, separate tax hike is inevitable soon.

‘Rough Partnership’

But Rostenkowski, the key Democratic ally of the White House in the tax reform effort, also said that his committee, as it rewrites Reagan’s tax proposal later this year, will remain “true to the spirit and the large pieces of the President’s reform plan.” He acknowledged that “to make a radical departure from the President’s proposal would be foolhardy,” and he added, “The only way to pass a reform bill is to continue our rough partnership.”

Although the House Democratic leadership remains committed to approving a tax bill this year, Rostenkowski said, Senate Republicans are much more reluctant to go along with the tax reform effort.

“I don’t know that (Senate Majority Leader) Bob Dole (R-Kan.) wants the ball” in his court, Rostenkowski said, pointing out that Dole has threatened that the Senate would derail Reagan’s tax plan unless Reagan and Congress could agree on a deficit reduction package. Rostenkowski said that tax reform should proceed even if there is no budget agreement this year.


Mixing metaphors throughout his speech and question-and-answer session with characteristically wild abandon, Rostenkowski conceded that Democrats “have been crying wolf over the deficits” ever since 1981, but that the “wolf has never shown itself to the voters.”

Only after “the old deficit wolf really bares his teeth,” Rostenkowski said, will both Congress and Reagan be forced to acknowledge that the only way to erase most of the government’s red ink is to increase taxes.

Predicts Tax Increase

“One day soon, we’re going to raise taxes,” he said, adding that Reagan was clinging to his campaign pledge not to boost taxes only because he did not want Democratic candidate Walter F. Mondale to be able to say, “I told you so.”

“We’ve about hit bottom on the spending side--both politically and as a matter of practical economics,” he said. “But when we decide to raise large amounts of revenue to draw down the debt, let’s have ready a new tax code that gives us the revenue base to do it without hitting anyone or any business unfairly.”

Acknowledging that “business will be paying more taxes under any tax reform plan,” Rostenkowski still insisted that many corporate leaders would accept tax revision once they are assured that it will be the “end to pinball tax policy” in which Congress makes significant changes in the tax code nearly every year.