Deficit Reduction Plan Stalls Amid House-Senate Dispute : Cigarette Tax Extension Is Likely Battle Casualty

The House and Senate early today apparently were at an impasse over a three-year, $74-billion package of spending cuts and tax hikes in a move which jeopardized extension of the 16-cent-a-pack cigarette tax.

In a raucous and bitterly contentious finale to the 1985 legislative session, the Democratic House and Republican Senate spent Thursday playing fiscal chicken with the deadline for expiration of the tobacco levy, refusing to cave in to the other’s formula for extending it.

Expiration of the 16-cent levy would mean the tax would revert to 8 cents. Several states have passed standby taxes that would automatically take up the slack, should the 16-cent levy be halved, making it politically difficult to revive the 16-cent level once it is cut.

Caught in the center of the dispute was a three-year, $74-billion package of spending cuts and tax hikes approved earlier Thursday by a House-Senate conference committee and then endorsed 78 to 1 by the full Senate. That measure included a permanent extension of the 16-cent levy. The House, however, refused to go along with the bill unless a key provision creating a new tax on manufacturers to raise funds for the Superfund toxic waste cleanup program was excised.

Caught in Tussle

The cigarette tax and the bulk of the deficit cutting plan, known in legislative jargon as a “reconciliation” package, were caught in a confusing tussle over the controversial new Superfund tax inserted in the bill by Senate negotiators.

President Reagan had threatened to veto the reconciliation package if it contained the new Superfund tax on large manufacturers, which critics said was a first step to a national sales tax. Some key Republicans and Democrats backed Reagan and others opposed him.

Failure to act on the reconciliation package does not kill it, but legislative pressure to enact some of its politically thorny spending cuts mounted. The Senate voted 78 to 1 in favor of the full deficit-cutting plan, with Sen. Barry Goldwater (R-Ariz.) casting the only negative ballot. But despite the overwhelming Senate tally, several opponents of the Superfund tax were openly rooting for the House to remove it from the bill.

“I hope the House can knock it out,” said Senate Majority Leader Bob Dole (R-Kan.). “I’m not sure the President will sign it (the deficit package). But it has no chance with that (the Superfund tax) in it.”

Rising Tempers

Tempers got increasingly testy as both chambers spent the day batting competing proposals to extend taxes or pass versions of the reconciliation bill back and forth.

“They’re not about to ram this down our throat,” shouted Rep. Delbert L. Latta (R-Ohio) as colleagues on both of the aisle screamed “no”. “The American people don’t want another tax.”

As the standoff continued, another House Republican, Lynn Martin of Illinois, complained the standoff was “ludicrous” and tried unsuccessfully to adjourn for the year. “It is indeed nap time,” she declared.

Shortly before midnight, the atmosphere in the House chamber turned to an exhausted giddiness and Rep. Robert K. Dornan (R-Garden Grove) took the rostrum to make a light-hearted public apology to New York Democrat Thomas J. Downey. Earlier in the year, Dornan caused a scene by grabbing Downey roughly by the tie on the House floor after the New Yorker had objected to being called a “draft-dodging wimp” by Dornan.

“I’d like to get something off my chest,” Dornan declared. “Tom Downey, Merry Christmas.”

Step to Sales Tax

Critics contend that the business tax, which for the first time would slap an assessment on the sale by manufacturers of the goods they produce, is a step down the road to a national sales tax.

President Reagan has signaled opposition to several elements in the deficit program, including retention of the 16-cent tax and a formula that would distribute long-frozen revenues from offshore oil drilling operations among the federal government and several states, including California.

However, the Superfund tax is believed to be the most galling to Reagan, who frequently has vowed not to raise taxes to cut the federal deficit. Superfund taxes now are restricted generally to levies on oil producers and chemical companies--those most likely to have produced the kinds of toxic dumps that the program was created to clean up.

Estimated Revenue

The revised program, approved Thursday by a House-Senate conference committee and later the Senate itself, would add a new tax of $1 for every $1,000 transaction involving the sale or transfer of industrial goods from a manufacturer. That levy alone would raise an estimated $5.7 billion for the Superfund program over the next five years.

Lawmakers have been working on the full deficit-slashing plan ever since Congress passed a budget resolution last summer that ordered them to come up with a scheme to stem federal red ink.

The full measure outlined a sweeping series of spending cuts and revenue enhancements--the polite Washington term for tax and fee increases--estimated to trim about $74 billion from projected federal deficit levels over the next three years.

Warning From Packwood

Sen. Bob Packwood (R-Ore.), chairman of the Senate Finance Committee, warned before the House action that he would try to block consideration of the deficit package if it did not contain the new Superfund tax. And Packwood indicated that he felt Reagan’s threat to veto the package over the Superfund question was a bluff.

“If they (the White House) veto it, there go a lot of savings, and they’re going to have a dickens of a time getting another (deficit-cutting) bill,” Packwood said.

However, in what amounted to a strange coalition with the President, Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, backed Reagan’s opposition to the tax and vowed to fight it on the House floor.

Small manufacturers would be exempted from paying the proposed levy, as would food processors and fertilizer producers.