Packwood Confident on Tax Reform : Expects Panel to Produce Bill Along Lines Reagan Prefers

Senate Finance Committee Chairman Bob Packwood (R-Ore.), returning from a weekend retreat in West Virginia with members of the tax-writing committee, said Saturday that he is convinced the panel will produce a tax-overhaul bill along the lines preferred by President Reagan that would trim at least part of the deduction for state and local taxes.

“I know we can get a bill,” Packwood said at a Capitol Hill news conference. Treasury Secretary James A. Baker III, who also attended the retreat, added: “We have taken the first step toward Senate passage of a tax reform bill.”

But some members of the committee, which is scheduled to begin a new round of hearings on tax revision this Wednesday, remained skeptical that the panel will be able to reach agreement. Several vowed to fight any change in the deduction for state and local taxes, and one member, Sen. George J. Mitchell (D-Me.), suggested that support for tax revision remains “half-hearted” on the committee.

Packwood said several informal straw votes among members of the committee indicated that there is a “strong feeling” the bill approved last month by the House panel is anti-business and should be made more favorable to corporations.

Favors Reagan Goals

In addition, Packwood said, the panel generally agrees with most of the other goals Reagan has outlined for his top domestic priority, stating that:

--The majority of committee members did not favor using the tax revision bill as a vehicle to boost taxes and agreed that it should raise the same in revenues as current law.

--There was general support for boosting the current $1,080 personal exemption to $2,000 for lower- and middle-income taxpayers and for trying to cut the top individual tax rate to 35%.

--Members welcomed remarks by Donald T. Regan, White House chief of staff, who said Friday that tax revision should not harm natural resources industries like oil, gas, timber and mining. Packwood comes from a state with extensive timber interests.

A Herculean Task

Meeting all these goals, however, may prove to be a herculean task. It will be difficult for committee members to find tax provisions they are willing to eliminate.

“If we try to change the House bill significantly to be more beneficial to business,” Mitchell said, “you can’t possibly have the rate reductions everybody wants.”

The House bill, like President Reagan’s proposal, lowers tax rates for individuals and corporations but makes changes from present law that give most individual taxpayers a tax cut while boosting taxes on corporations. Unlike Reagan’s proposal, however, the bill retains the deduction for state and local taxes and hits harder at business and wealthy individuals who rely extensively on existing tax breaks.

Packwood refused to outline which tax preferences the committee might eliminate, beyond noting that the panel generally favored getting rid of the relatively trivial deductions for sales taxes and personal property taxes.

Not All Members Agree

“It was very clear there was no support, or very little, for elimination of . . . real property tax deductions,” he said, adding that “on (state and local) income taxes, I did not get a sense one way or the other.”

But not all of the members agreed with Packwood.

Even a partial limitation of the state and local tax deduction, Sen. Daniel Patrick Moynihan (D-N.Y.) warned, could “jeopardize the legislation both here and in the House.”

To provide greater tax advantages for business, Sen. Dave Durenberger (R-Minn.) suggested that the committee would aim at cutting back the deduction for non-mortgage interest payments, which he noted encourages consumers to borrow rather than to save.

“The House bill is consumption-biased,” Durenberger said. “We are pro-growth; they are pro-consumption.”

Battle Over Budget

Complicating the tax overhaul effort in the Senate will be the simultaneous battle over the federal budget. Although Packwood said there would be no move to boost taxes unless Reagan agreed, several members said there was strong support for raising taxes as part of an overall effort to shrink the budget deficit.

The panel also rejected using either the House bill or Reagan’s original plan as a starting point for its drafting work. Packwood said the committee would hold several days of hearings to take additional testimony and then would probably begin its work in earnest by early March.