Rostenkowski Willing to Delay Tax Changes on Bonds

WASHINGTON — House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) said Monday that he is willing to postpone the effective dates of some of the House-passed changes in the tax code that have brought most tax-exempt bond financing to a halt.

Rostenkowski, who until now had consistently supported making most aspects of the House-approved tax revision bill retroactive to the beginning of this year, told the National League of Cities that “some selective changes . . . would be appropriate so that bonds financing direct operations of state and local governments can proceed to market.”

Local officials, who are gathered here for their annual league meeting, have complained bitterly that the House tax bill, by proposing major retroactive changes in the tax code, prevents them from issuing tax-free bonds this year even before the Senate begins working on its own tax revision package.

Packwood Plan

Meanwhile, Senate Finance Committee Chairman Bob Packwood (R-Ore.) scheduled a meeting for today with President Reagan to discuss his own tax proposal. Aides indicated that Packwood has received favorable reaction from Administration officials to the plan that he wants to use as a starting point for the committee’s deliberations.

The proposal by Packwood--who has kept most of its specifics secret even from members of his own committee--differs from the House bill in certain key aspects, staff members have said, by imposing modest limits on state and local tax deductions, allowing more generous write-offs for business investment and introducing some limits on business deductions for interest and advertising expenses. The proposal would also lower the top personal tax rate--now 50%--to 35%, instead of the 38% in the House bill.

Middle of Next Week

Packwood is expected to disclose his proposal to senators as early as today and hopes to start the weeks-long process of drafting a bill in committee by the middle of next week.

At the same time, Sen. Dave Durenberger (R-Minn.), along with Sens. Pete V. Domenici (R-N.M.) and Pete Wilson (R-Calif.), introduced a bill that would ease substantially the restrictions in the House bill designed to limit the use of tax-exempt bonds for private purposes and non-government functions.

At a news conference, Wilson and Domenici vowed to vote against the House tax bill unless it is changed substantially. Supporting Durenberger’s efforts to continue most tax-exempt financing as it is today, Wilson accused the House bill of fostering “urban decay.”

Durenberger suggested that Packwood is likely to adopt much of his proposal in drafting his initial tax revision plan. But Finance Committee aides said that Packwood’s proposal will contain only modest changes from the House bill in the treatment of tax-exempt bonds. However, they acknowledged that Durenberger has attracted wide support among senators and is likely to win some changes in the bill during the committee’s work.

Bond Issues Reduced

According to the National League of Cities, uncertainty over whether the House bill would apply to current operations already has reduced the issuance of municipal bonds by 82% this year. But many local governments issued huge bonds at the end of 1985 to prepare for the possible tax changes and are sitting on a hoard of cash.

At the meeting, the head of the league issued a renewed call for a tax increase to soften the impact of budget cuts on federal aid to cities, particularly the scheduled elimination of the $4.6-billion general revenue-sharing program.

With 3,500 city officials in Washington to plot strategy and lobby hometown members of Congress, San Antonio Mayor Henry G. Cisneros said the league is trying to break down “the Berlin Wall” that the Reagan Administration has tried to place between tax law changes and reductions in the deficit.

“We need to talk in terms of new revenues,” Cisneros said.

Would Support Hikes

Alan Beals, executive director of the league, said that city officials are telling congressmen: “If you raise taxes, we’ll support you.”

A survey released at a four-day league conference here shows that 25% of the nation’s cities would have to raise taxes and fees to make up the loss of revenue sharing, a no-strings aid program that cities have often relied upon to fund day-to-day operations.

Cutting out the program would simply be “shifting the (tax) burden from one level of government to another,” Cisneros said.

However, White House Budget Director James C. Miller III insisted that Reagan’s fiscal policies--including opposition to any significant federal tax increase--would help expand the economy, which is “far more important to cities and state governments than billions of dollars in federal largess.”