Panel Moves to Restrict Tax Breaks for Timber and Housing Industries

The House Ways and Means Committee, holding unusual weekend sessions in an effort to break a logjam on President Reagan’s tax overhaul plan, moved Saturday to restrict tax breaks for timber producers, housing developers and families that give substantial sums of money to their children.

Although the tentative decisions are aimed at limited aspects of the tax code, the actions are seen by members as further evidence that Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) is making substantial progress toward producing a tax bill for the House to vote on before it adjourns for the year. The Senate is not expected to take up the issue until next year.

Backs Local Deductions

Earlier last week, Rostenkowski told many members that he was willing to leave the existing deduction for state and local taxes intact, clearing away perhaps the most controversial aspect of the White House tax revision package.

“The chairman now seems to have the votes to push a bill through the sticky issues,” Rep. Robert T. Matsui (D-Sacramento) said. “Before, people were not willing to sit down with Rostenkowski. Now, they are ready to make deals.”

But, in many cases, the panel was moving forward by carving out exceptions to some of the tougher restrictions originally advocated by Rostenkowski and President Reagan.

As the committee met Saturday, a White House spokesman noted that Treasury Department officials are involved in the negotiations behind closed doors.

‘Hope He’ll Hang Tough’

“We’re waiting to see what the final bill looks like,” said Albert Brashear of the White House staff. Referring to Rostenkowski, he said that “we hope that he’ll hang tough” and fight lawmakers’ efforts to keep many tax preferences.

Meeting privately, the committee tentatively decided to prevent parents from giving their children under the age of 14 a substantial amount of money so that the income earned from it would be taxed at the child’s lower rate. But the panel is expected to take up the issue again today and could ease the restrictions it decided to impose.

In addition, the committee agreed to boost taxes on most timber producers by eliminating the special capital gains tax break for corporations with timber holdings and to limit early write-offs for large producers. But small logging operations on federal lands would continue to take advantage of current tax breaks and individual owners of forest land would remain eligible for capital gains treatment.

Roadblock Lifted

The compromise removes a roadblock to agreement within the panel, but Senate Finance Committee Chairman Bob Packwood (R-Ore.) has vowed to fight any limitations on current tax breaks for timber, a crucial industry in his state.

The committee spent the morning fashioning an agreement on an equally contentious issue by adopting a complex package restricting the use of tax-exempt housing bonds to projects specifically aimed at the poor.

Under certain provisions in current law, committee aides said, tax-free bonds designated for low-income housing have often been used to finance all types of apartment buildings, including even some luxurious condominium developments.

Last year, about $5 billion in tax-free bonds were used to finance multifamily housing construction, but this year the use of such financing skyrocketed to an estimated $12 billion as developers rushed to build projects before any changes were made in the tax laws.

Aid for Low-Income Housing

However, the plan preserves important incentives for low-income housing that the White House had wanted to abolish. Rep. Charles B. Rangel (D-N.Y.) complained that the Administration has eliminated direct subsidies for low-income housing, leaving the tax code as the only method left to the federal government to encourage such projects.

“Unfortunately, we have to make a lot of people millionaires to get them to provide the low-income housing we need,” Rangel said.

But even though the proposal is considerably more generous to developers and investors than the White House plan, Treasury officials at the meeting said that the committee’s proposal was acceptable to the Administration.