Reagan Must Support Bill by Tax Panel, Analysts Say

President Reagan has little choice but to support the House Ways and Means Committee’s tax bill, despite White House reservations about it, political analysts said Tuesday, because he cannot afford to hand the Democrats a potential issue for next year’s congressional elections.

“Reagan has put himself into a box,” conservative political strategist Kevin Phillips said. “The Democrats have put together a package that would be more popular with the middle class (than the Administration’s original plan), so the White House just doesn’t have enough justification to get away with rejecting the bill.”

As a result, in the face of strong opposition from most business groups and misgivings among some White House officials about the economic effects of the House package, Reagan is expected to try to keep the bill alive in hopes of improving it next year when it goes to the Republican-controlled Senate.

“We won’t have another chance at tax reform this term,” one Administration official said. “We can’t afford to drown our own baby, even if he’s turned into a bit of a freak.”

The bill, which the Ways and Means Committee approved in the early morning hours last Saturday, is expected to go to the House floor early next month.

Although the committee’s plan conforms in many ways to Reagan’s approach, there are significant differences between the two versions that have led such White House officials as economics adviser Beryl W. Sprinkel and communications director Patrick J. Buchanan to urge Reagan to reject it.

The Ways and Means Committee bill, for example, would shift about $135 billion in taxes over the next five years from individuals to corporations, compared with a $120-billion shift in Reagan’s plan.

Unlike the White House proposal, the Democratic-shaped bill would retain the deduction for state and local tax payments. It would reduce the top personal and corporate tax rates to 38% and 36%, instead of the 35% and 33% recommended by Reagan. And, although Reagan asked that the personal exemption be increased from $1,040 this year to $2,000, the committee’s bill would make it $2,000 only for taxpayers who do not itemize their deductions and effectively limit it to $1,500 for itemizers.

Nonetheless, Treasury Secretary James A. Baker III and other Administration officials are urging Reagan not to oppose the bill on the House floor, arguing that he should not publicly disown the tax revision effort that he made the centerpiece of his second-term domestic agenda.

Speaking Campaign

Even though Reagan’s cross-country speaking campaign for tax overhaul failed to generate much public support, analysts argue, Democrats could pounce on Reagan if he opposes the Ways and Means Committee bill, which would be more generous toward the middle class and provide fewer tax breaks for the wealthy than the President’s plan.

Not only would the committee’s bill retain most middle-income tax deductions, but it would also provide modestly greater benefits than Reagan’s proposal to nearly all groups of taxpayers with incomes under $75,000, according to estimates by the Joint Tax Committee.

On average, taxpayers with incomes between $10,000 and $20,000 would receive a 22.5% tax reduction, compared with an 18% tax cut under Reagan’s plan. Those with incomes between $50,000 and $75,000 would receive a 6.5% tax cut, compared with a 5.9% reduction under the White House plan.

However, for those earning between $100,000 and $200,000, the average tax cut would be 9.1% in Reagan’s package but only 7% in the Ways and Means Committee bill.

Possible Revolt

Although the Administration hopes that the Senate will restore some of the features dropped by the Ways and Means Committee, the White House faces a possible rump revolt in the tax-writing Senate Finance Committee. Several committee members of both parties support a drastically different approach to tax revision: a new consumption tax that would raise the price of consumer goods, particularly imported products, to finance lower income tax rates.

Finance Committee Chairman Bob Packwood (R-Ore.) has expressed support for a so-called “business transfer tax” proposed by Sen. William V. Roth Jr. (R-Del.), particularly if most of the cost would be imposed on foreign goods by allowing U.S. firms to use the new tax as a credit against employer-paid Social Security taxes.

But business groups, not willing to count on improvements in the Senate, are stepping up their efforts to kill the bill on the House floor.

The U.S. Chamber of Commerce, the nation’s largest business association, urged Reagan and Congress Tuesday to abandon tax revision. Arguing that the Ways and Means Committee’s bill and Reagan’s proposal would “deindustrialize America,” chamber President Richard Lesher said: “We’re at the point of accepting the current tax code--with all its flaws.”

GOP Out-Voted

When the committee’s plan goes to the House floor, Democratic leaders in the House already have agreed to let the heavily out-voted Republicans offer their own alternative package if they can agree on one. But amendments to the Ways and Means Committee bill will almost certainly be forbidden, forcing an up-or-down vote on tax revision before the House adjourns for Christmas vacation.

If it passes the House, Packwood has said his Senate committee would take up the bill in February.