Votes Against Broader Deductions : Panel Changes Stand on Bank Tax Breaks

The House Ways and Means Committee, regaining some momentum in its faltering efforts to rewrite the nation’s tax code, Wednesday reversed part of last week’s decision that would have offered more generous tax breaks to banks.

The earlier decision had been a sharp setback for committee Chairman Dan Rostenkowski (D-Ill.), who, along with President Reagan, had sought to restrict, rather than broaden, tax breaks for banks. It had been viewed as a sign of serious trouble ahead as the committee tackles even tougher issues.

But on Wednesday, the panel voted 14 to 7 to withhold from the nation’s largest banks the broader tax deductions for reserves held to cover bad debts. Such deductions could not be claimed by institutions that have more than $500 million in assets. About 450 of the nation’s 18,000 banks are in that category.

Weekend Session

At the same time, members began gearing up for a rare weekend session that many say could make or break the committee’s chances for producing a major tax revision bill this year.

“You go until you get knocked off the road. Obviously, the farther you go, the more momentum you have, the harder it is to knock you off the road,” one aide to Rostenkowski said. “That’s what Rostenkowski is after. He’s got to have some good, clean victories this weekend.”

A key strategist for the House Democratic leadership agreed: “Time is already running out, but I think if there isn’t some significant progress by Monday, the odds shift rather significantly against” the House passing a major tax bill this year.

Slow and Painful

In the last three weeks, the committee’s progress on the bill has been slow and painful. Skipping over most of the more controversial issues it must face eventually, it has made decisions in only a few areas--and even these have not been final.

It is widely believed that unless the House completes action on tax overhaul this year, President Reagan’s top domestic priority will have little chance of serious consideration in Congress until after the 1986 elections. The Senate, where Republicans are in danger of losing their majority, is expected to be even more leery than the House of pressing the issue.

Wednesday’s banking vote, along with decisions on several relatively minor issues, moved the bill somewhat closer to its goal of producing a bill that is “revenue neutral”--one that neither increases the gaping federal deficit nor adds to the total amount of revenue collected by the government in taxes.

$7.5-Billion Shortfall

The decisions Wednesday would provide about $6 billion in revenues over five years but still leave the committee $7.5 billion short in its efforts to avoid significantly worsening the deficit. The Administration has said that it will not support the bill unless it is revenue neutral.

In preparing for the weekend meetings, Rostenkowski appointed four working groups from among committee members to make recommendations to him regarding tax law for small businesses, agriculture, low-income housing and tax-exempt bonds.

Other areas likely to be on the committee’s agenda include the timber industry, accounting practices, trusts and estates, insurance, employee business expenses and corporate tax issues.