Panel Facing ‘Tough Issues’ in Tax Plan

The House Ways and Means Committee, which has completed three-quarters of its work on a sweeping overhaul of the nation’s tax code, still faces its most difficult work in the next week, Chairman Dan Rostenkowski (D-Ill.) said Sunday.

“We’re coming into the real tough issues--real estate, energy, fringe benefits, travel and entertainment. Those are issues that . . . create more pressure than any others. There are effective lobbies out there in those areas,” Rostenkowski said.

Rostenkowski also seemed to concede what committee members have been saying privately for weeks: The committee’s plan, which he hopes to produce by Friday, probably will not meet President Reagan’s demands that the top individual rate be set no higher than 35%. Individuals now pay up to 50%.

‘Trying to Keep My Word’

“I’m trying to keep my word (by cutting tax rates enough to satisfy Reagan),” Rostenkowski said. “I don’t know that I will be able to control that in the committee, but, my gosh, I wouldn’t want, and I’m sure the President or (Treasury Secretary) Jim Baker wouldn’t want us to lose this opportunity to write history . . . over one or two percentage points. I just think they have to be realistic about it.”

Rostenkowski commented at a news conference shortly before the committee went into another closed session on the most comprehensive revision of the nation’s tax code since the income tax was introduced in 1913.

Because it seeks to lower rates overall by eliminating many popular tax breaks, the plan has encountered strong pressure on almost every front from powerful lobbying groups. On most questions, the panel has been unwilling to go as far as Reagan and Rostenkowski have asked.

Two Tax Breaks Extended

The panel voted Sunday to extend two tax breaks that Reagan and Rostenkowski had wanted to eliminate: a tax credit encouraging the hiring of handicapped or poor workers and one that defers taxes on funds set aside by ship owners for building new vessels.

With more than three-quarters of the committee’s work behind it, Rostenkowski said: “I am confident that the momentum we’ve now established will prevail . . . . When you’re in the homestretch and you look like a winner, people jump on.”

Committee members say that unless they have approved the outlines of a plan by Friday, it will be difficult to bring it to a House vote this year. The Senate is not expected to begin work on the proposal until after the House action.

Caught in the Middle

After working through the weekend, the committee has not yet grappled with its most politically dangerous decisions, where Rostenkowski finds himself caught between the demands of House members and those of the Administration.

At issue are taxes on real estate, energy, fringe benefits, travel and entertainment.

The Reagan Administration has expressed growing displeasure over the committee’s work, particularly Rostenkowski’s decision to preserve deductions for state and local taxes. The chairman has not announced the decision publicly, but individual members have said that he has pledged privately several weeks ago not to touch the deduction.

Eliminating that deduction had been crucial to the Administration’s tax plan. Without the $166 billion that would be raised over five years by repealing the deduction, it would be almost impossible to lower rates as much as the Administration had asked and still produce a “revenue-neutral” tax bill.

Horse-Trading Paying Off

However, this concession and the other horse-trading that Rostenkowski has done in private meetings with individual members already is paying off in lining up support behind otherwise-controversial provisions within the overall package.

For example, the committee voted Saturday to limit tax credits that companies claim for doing business and paying taxes overseas.

Businesses mounted a strong lobbying drive, arguing that this move would hurt their ability to compete globally at a time when the nation is running a record trade deficit. But they lost badly in their efforts to defeat the committee’s proposed new rules, which would boost corporate taxes by $12 billion over the next five years.

“The chairman drove home so many deals before this ever came up,” complained one disappointed lobbyist for one of the nation’s largest banks. While the lobbyist said the majority of the committee had agreed with his argument generally, “very few members had this (issue) in their backyard,” meaning that it was not their chief concern. Therefore, they dropped their opposition to the foreign tax provisions in exchange for other concessions, such as state and local tax deductions, he said.