Packwood Pondering Revenue Increases : Small Excise Levy Hikes Would Permit Lower Income Tax Rates

Senate Finance Committee Chairman Bob Packwood (R-Ore.) is considering a “laundry list” of measures to raise revenues as part of his panel’s effort to develop its own tax overhaul package, including the possibility of boosting federal excise taxes on beer, wine, telephone bills and tires, congressional sources said Tuesday.

The relatively small tax increases, which would be in addition to a previously disclosed proposal from several senior committee members to include a substantial oil import fee or other energy tax, could be used to finance more generous tax preferences for business and lower individual income tax rates in a “revenue-neutral” plan that would not increase overall federal taxes.

Treasury Proposals

The panel’s staff is also beginning to look at a number of new proposals from the Treasury Department for raising additional revenues--such as disallowing 10% of businesses’ deductions for interest payments and 20% of advertising expenses--so that the House-passed tax revision bill can be changed to conform more closely to President Reagan’s demands.

The additional revenue would be used to pay for such measures as lowering the top individual tax rate to 35%, more liberal write-offs on business investments, a $2,000 personal exemption for a greater number of taxpayers and a lower tax rate on profits from capital gains.

“We are going to need all kinds of revenue plugs (in the tax overhaul package),” said a committee staff member who requested anonymity. “The laundry list is getting longer and longer all the time, and excise taxes are definitely near the top, right after some kind of energy tax.”

President Reagan has indicated that he might accept an oil import fee as part of a tax revision package. But, when asked at his press conference Tuesday night about such a fee as a way of avoiding domestic spending cuts, he rejected increasing government revenues in any way.

“It’s historic that, when you go above a certain percentage in taking revenue from the private sector . . . you find that you slow the economy,” Reagan said.

Separately, Reagan avoided criticizing the Federal Reserve but said that “we’ve got to keep an eye on” the current rapid increase in the money supply to avoid a new outbreak of inflation.

Starting Point for Panel

In the Senate committee deliberations, Packwood had hinted earlier that he was thinking about increasing some unspecified excise taxes as part of the tax revision plan, which he wants to prepare as a starting point for the committee’s deliberations, scheduled to begin in early March.

Tuesday’s disclosure was made amid reports that Packwood is running into difficulty developing a tax revision plan that would appeal to a majority of the panel’s 20 senators.

At the same time, an Administration official involved in the tax revision effort, who spoke only on the condition that his name not be used, expressed worry about the situation in the committee, which recently conducted several days of hearings at which economists generally attacked both the House bill and Reagan’s original tax overhaul proposal.

“What we’ve seen so far is very discouraging,” the official said. “I don’t see any sign of progress. Instead, it looks like they’re going backwards.”

Packwood, who is meeting with constituents in Oregon during the congressional recess this week, was unavailable for comment.

William Diefenderfer, the committee chief of staff, said that Packwood plans to meet with other panel members after he returns to Washington before settling on specific proposals.

“We haven’t started doing any drafting,” he said. “We are looking at all kinds of possibilities, but no one has begun to do any piecing together yet.”

Earlier this month, Reagan signaled his willingness to consider an oil import fee in a tax revision package as long as it does not increase the overall tax burden. Treasury Secretary James A. Baker III added later that Reagan might also accept a higher gasoline tax under the same conditions.

Although Administration officials said that Reagan has ruled out accepting a value-added tax--a type of federal sales tax--they said he might be prepared to go along with some increases in excise taxes as part of the tax revision package.

“We’re not going to open the door to higher taxes as part of the deficit-reduction effort, period,” one official vowed. “But that doesn’t mean we won’t consider other revenue sources to help meet the President’s requests.”

Threat of Veto

Staff members for several senators on the committee said that new revenue sources are necessary to meet the goals outlined by Reagan last December, when he wrote a letter to House Republicans vowing to veto the House tax bill unless it included lower tax rates, more generous business write-offs and a $2,000 personal exemption for most taxpayers.

The House bill conforms in many ways to Reagan’s original proposal but it reduces the top personal tax rate to 38% instead of 35%, provides a $2,000 exemption only for persons who do not itemize deductions and is somewhat less generous to business than the White House plan.

Last week, Treasury officials sent a 26-page document to Senate tax bill writers estimating the cost of various alternative proposals to comply with Reagan’s goals. The Treasury estimated that its proposal to index depreciation write-offs to inflation, for instance, would cost $6.3 billion over five years, but making the write-offs more generous would reduce revenues by about $40 billion.

Dropping the top tax bracket to 35% rather than 38% would cost $18.5 billion, according to Treasury estimates, and a full $2,000 personal exemption for all taxpayers would cost $49.4 billion.

On the other side of the ledger, a $4-a-barrel oil import fee would raise an estimated $42.4 billion over five years, and a 6% tax on all energy sources would raise $102.2 billion.