Packwood’s Tax Plan Will Seek to Shift Burden to Business

Senate Finance Committee Chairman Bob Packwood (R-Ore.) said Wednesday that his initial tax proposal will follow the lead of the House in shifting close to $140 billion of the income tax burden away from individuals to business over the next five years.

But, unlike the House-approved tax bill, it would impose some limits on the state and local tax deduction. It would also allow millions of Americans with 401(k) savings retirement plans to continue their contributions to individual retirement accounts. Taxes are now deferred on money put into both 401(k) plans and IRAs.

Meanwhile, President Reagan ruled out an oil import fee as part of any tax revision package, a move that probably puts the last nail in the coffin of a proposal that even its strongest backers have recently conceded no longer has a chance of winning approval on Capitol Hill.

Reagan Rejects Import Fee

Last month, Reagan had suggested that he would accept a tax on imported oil if it were tied to a tax overhaul bill that would not increase the overall tax burden. But at a breakfast with a group of reporters Wednesday the President rejected the idea.

“Having looked at it and studied it . . . I have to say that I’m opposed,” Reagan said. “I think it would have a bad effect on (the) economy.”

Packwood, speaking to a group of insurance officials in a rare recent public appearance, said the plan being prepared behind closed doors by the Finance Committee’s staff, as expected, would provide more generous write-offs for business investment in plant and equipment. But the changes, he suggested, are going to come largely at the expense of other business provisions--including, committee sources said, limits on corporate interest deductions for borrowing.

The draft proposal, which Packwood said he is still working on, also would postpone the effective dates in the House-passed tax bill to avoid making any tax law changes retroactive.

Widespread Confusion

But Packwood avoided promising that all of the provisions would be delayed until 1987, which is the position advocated in a letter signed by a majority of the Finance Committee members. The issue has created widespread confusion, particularly among tax shelter promoters and government officials offering tax-free municipal bonds, who have complained to numerous lawmakers that uncertainty over when tax changes might go into effect has had a chilling effect on business transactions.

Packwood also warned business investors against counting on a delay in the effective dates of the tax bill because House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) has so far refused to accept any postponement of the effective dates. Most of the House provisions are supposed to go into effect retroactively to Jan. 1 of this year and some would apply even earlier.

The Senate Finance Committee is expected to begin drafting its own tax bill later this month, a process that is expected to take at least several weeks. Packwood is close to completing a proposal to be used as a starting point for the committee’s work, which is likely to shape strongly the final outcome of the committee’s package.

Plans Talk With Baker

Packwood is scheduled to discuss his tax proposal today with Treasury Secretary James A. Baker III, the chief Administration negotiator for Reagan’s top domestic legislative program.

Packwood, repeating earlier statements, said his plan would propose to abolish the deduction for state and local sales taxes while retaining the property tax deduction. He said it would also include some limit on state and local income tax deductions but would not come close to the White House proposal to abolish the deduction altogether. He refused to be more specific.

To warm applause from the insurance group, Packwood predicted that he could fight off any efforts to bring several issues important to the industry, such as proposals by the Reagan Administration to tax some employer-provided fringe benefits and the accumulated cash value of whole life insurance.

Packwood also said the Senate proposal would reject the House bill requirement that those who rely on 401(k) plans to avoid taxes on part of their pay until retirement must reduce their contributions to an IRA by an equal amount.

Would Encourage Savings

“I don’t think we will do (a 401(k) plan) offset with an IRA,” Packwood said, pointing out that the House approach would effectively prevent employees with 401(k) contributions from also investing in an IRA.

Packwood, emphasizing his wish to shape a tax plan that would encourage savings and investment, said his proposal also is likely to place tougher limits on consumer interest deductions than the relatively generous House bill.

He said the decision on consumer borrowing deductions would not be made until it is clear how much additional revenue would be needed to ensure that the package raises about the same in estimated revenues as the current tax code.

“The whole theory of the bill is to target money where it can be best used,” said Bill Diefenderfer, the Finance Committee’s chief of staff. “I can’t comment on specific provisions, but economists say if we move, say $20 billion to $30 billion, currently used to encourage excessive debt to encouraging better capital formation, it will benefit the economy.”

Other committee staff members said that Packwood has not yet resolved several key issues, in part because estimates of the revenue impact of proposed changes were not available until late Wednesday.

Among the remaining loose threads, they said, is settling on a practical way to boost the current $1,080 personal exemption to $2,000 for most taxpayers.