Panel Leaning Toward Increasing Top Tax Rate : Democrats Discussing 40% Levy on Wealthy but Republicans Oppose Change

Members of the House Ways and Means Committee, getting off to a slow start in their closed-door attempt to rewrite President Reagan’s tax revision proposal, indicated Tuesday that the panel’s Democratic majority is leaning toward imposing a top tax rate as high as 40% on wealthy individuals.

“Several members spoke strongly in favor of a higher tax rate for the rich,” Rep. Robert T. Matsui (D-Sacramento) said. “If you put in a 40% rate on incomes above $100,000--which I don’t think that many people would be against--it would solve a lot of our problems.”

Ever since Reagan last May announced his own tax plan, which would lower the top tax rate for individuals from 50% to 35%, Democrats on the tax-writing committee have discussed the idea of limiting the tax break for the wealthy by keeping the top rate above 35%.

GOP Backs Reagan Figure

But Republicans, outnumbered 23 to 13 on the committee, said that they would continue to oppose any move to raise tax rates above the level recommended by Reagan, who calls the 35% figure a crucial component of his tax proposal.

“Republicans in general want to hold to the President’s 35%, and it would go higher only if it were not possible to do it any other way,” Rep. Bill Frenzel (R-Minn.) said. “We have told them we will not be part of that cabal.”

Committee members also have discussed the idea of boosting all three tax brackets in Reagan’s plan--15%, 25% and 35%--by about two percentage points to help in retaining certain tax preferences for business and individuals.

While the tax panel avoided making any decisions on the specifics of its tax bill, Reagan called on Congress to “quit playing political games” with tax revision.

Target May Be Senate

But his speech to a group of supporters gathered at the White House seemed aimed more at the Republican-controlled Senate than at the House Democratic leadership, which still intends to vote on the measure before Thanksgiving.

Earlier in the day, Reagan urged a group of Republican senators to approve his tax proposal this year, but Sen. John C. Danforth (R-Mo.) said: “I think the President feels more strongly about it than most senators.”

Meanwhile, the committee released new figures on Chairman Dan Rostenkowski’s initial tax proposal showing that the modification would provide individuals with about $29 billion more in tax cuts than the President’s plan, while raising taxes for corporations by an equivalent amount.

Under the Rostenkowski proposal, which will serve as the starting point for the panel’s deliberations, individuals would receive a total tax cut from 1986 to 1990 estimated at $164.3 billion. Corporations would be required to pay an additional $160.3 billion--leaving the overall revision of the income tax system theoretically raising nearly as much in revenues as the current tax code.

Retaining a partial deduction for state and local taxes is the largest change in Reagan’s plan that Rostenkowski (D-Ill.) has proposed. Abolishing that deduction, as the White House wants, would raise $166 billion over five years, according to estimates prepared by the Joint Tax Committee.

Panel’s Alternative

Rostenkowski’s plan, meanwhile, would allow taxpayers either to deduct up to $1,000 in income and real property taxes or to deduct any such taxes that exceed 5% of adjusted gross income, if that is greater. The compromise would raise only about 40% as much as repealing the deduction, or $64.9 billion.

By contrast, most other major changes in the proposal suggested by the committee’s staff would raise additional tax revenues.

As the Ways and Means Committee slogged through its third day of discussion of Rostenkowski’s initial proposal, members expressed frustration at the slow pace and complained about the difficulty of settling on any specific tax proposal.

“I think we’re farther away from passing a bill than when we started,” said Rep. John J. Duncan of Tennessee, the ranking Republican on the committee.

And Rep. Wyche Fowler Jr. (D-Ga.) noted that the committee already has spent months listening to testimony from hundreds of interest groups and debating the merits of a plan that first surfaced last November.

“We’re like a woman who has been pregnant for nine months and 26 days. It’s exhausting, but we’re just about ready to deliver this baby,” Fowler said.