Lawmakers Object to House Panel’s Tax Plan

The effort by House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) to reshape President Reagan’s tax revision plan to make it more politically palatable got off to a shaky start as panel members and interest groups complained Friday about several of the staff-prepared proposals.

While Rostenkowski sought to find a common ground on several contentious issues, such as Reagan’s proposal to repeal the state and local tax deduction, Ways and Means Committee members from the high-tax state of New York were not appeased.

“It’s a disaster,” Rep. Thomas J. Downey (D-N.Y.) said. “Democrats should not endorse something that gives a patina of respectability to hammering the state and local tax deduction.” And Rep. Raymond J. McGrath, a New York Republican, insisted that the proposal was “not acceptable.”

Keeping to Goal

But those who want a restructured tax system held to their goal of steering a bill through the House this year. The tax-writing committee prepared to devote the next several weeks to drafting a bill that would lower tax rates while pruning dozens of special tax preferences.

The committee staff’s proposal, which was released Thursday and will serve as the starting point for the committee’s actions, lays “out some improvements, and I think many of them could be adopted,” Rep. Richard A. Gephardt (D-Mo.) said.

Gephardt called for a few changes in the plan prepared under Rostenkowski’s guidance and predicted that the committee “can do better” in distributing additional benefits to middle-income taxpayers.

Not ‘Tablets of Stone’

Other committee members agreed that they would make many changes in the staff proposal before a bill is ready for House action.

“I see this as just another set of recommendations,” Rep. Byron L. Dorgan (D-N.D.) said. “They’re not to be viewed as tablets of stone handed down to Moses.”

Rostenkowski, who endorsed the general outlines of the package, told committee members at their closed session that he will remain flexible on controversial provisions.

Meanwhile, a few important outside supporters of the White House tax package expressed doubts about the proposal from the committee staff.

John M. Albertine, president of the American Business Conference, said business leaders in the White House-sponsored Tax Reform Action Coalition “were very upset at the increase in the corporate rate from 33% to 35%. If it goes much higher, they may find a united business community against the proposal.”

Albertine, breaking with the White House position that Congress should move quickly to approve a bill this year, sought to play down the urgency of tax revision. “This plan is going to go through 14 more drafts and take at least 18 months,” he said. “Congress needs to tackle the deficit and trade. Tax reform is a much lower priority.”

Other interest groups raised objections to staff proposals to scale back the research and development tax credit, reduce tax breaks for oil drilling and limit tax-free employee fringe benefits.

Reagan Withholds Comment

White House spokesman Larry Speakes said Reagan would have no comment on the committee’s deliberations until a complete bill emerges. Treasury Secretary James A. Baker III, who attended the panel’s closed-door meeting on Thursday, made few remarks about the proposal, according to members.

The Ways and Means staff plan differs in significant ways from Reagan’s proposal by maintaining at least part of the state and local tax deduction, increasing the capital gains tax rate, diminishing business tax write-offs and providing a more gradual transition to a new tax system.

But it also follows the general outlines of Reagan’s plan by cutting the top personal tax rate from 50% to 35%, preserving revenue-neutrality and providing an average 10% tax cut for individuals.