Senate Panel Would Delay Tax Changes Until Next Year

The Senate Finance Committee, beginning the long process of writing its own tax overhaul bill, Wednesday overwhelmingly endorsed a plan to refuse to negotiate with the House on a final congressional tax bill unless nearly all tax changes are delayed until next year.

Members complained bitterly that investment decisions have been paralyzed by uncertainty over whether tax changes already adopted by the House might be made retroactive. To encourage business to go ahead with planned investments this year, they vowed to avoid any effort to settle differences between their bill and the House-approved tax package until negotiators from the Ways and Means Committee accept the Senate position on when tax law changes would go into effect.

Although President Reagan continues to insist that tax revision is his top domestic priority, Senate Finance Committee Chairman Bob Packwood (R-Ore.) faces the difficult task of persuading many of his reluctant colleagues to accept a bill designed primarily to boost business and consumer excise taxes so that individual income tax rates can be lowered.

Early Stumbling Blocks

Packwood’s proposal to dramatically boost excise taxes, along with a plan to eliminate some state and local tax deductions and to provide an early $32-billion rebate to corporations for unused investment tax credits, emerged as major early stumbling blocks in the Senate proposal.

Treasury Secretary James A. Baker III, attending the largely ceremonial kickoff session, praised Packwood’s initial proposal, which will be used as a starting point for the committee’s work, including its controversial provision that would raise excise taxes indirectly on such popular consumer goods as alcoholic beverages, tobacco and motor vehicle fuels.

But many members of the panel immediately objected to the excise tax proposal, which Packwood vigorously defended as the “engine that makes the rest of the bill possible.”

If the excise tax increases are not approved, Packwood said, “you’re going to have to raise the individual and corporate rates immensely--far beyond what would be acceptable to me or the President.”

‘Voodoo Revenue Raiser’

Packwood’s proposal would end business deductions for all excise taxes and tariffs, raising an estimated $62 billion over the next five years. Another $13 billion would be raised by higher wine taxes and by increasing other excise taxes.

Although the chairman of the Finance Committee insisted that it was unclear whether consumers or business would absorb the excise tax hike, most tax analysts argue that the higher excise taxes generally would be passed along to consumers.

Sen. Daniel Patrick Moynihan (D-N.Y.) called the idea a “voodoo revenue raiser” and predicted that it would be rejected by the committee.

Democrats on the panel objected to a proposal that would give corporations a total of about $32 billion to cover unused investment tax credits. Under the bill, the investment tax credit would be killed, but companies would continue to be eligible for tax credits from previous investments.

Plan Raises Hackles

Although the plan would not cost the government any revenues over the next five years because companies are scheduled to receive the remaining tax credits anyway, it raised hackles among several members who objected to the Treasury’s sending checks to dozens of major corporations.

Taxpayers will not accept a plan that writes “welfare checks to corporations to the tune of tens of billions of dollars,” Sen. Bill Bradley (D-N.J.) argued.

Packwood defended the proposal as an aid to ailing industrial firms in the Midwest Rust Belt and to farmers who have not been able to take advantage of their tax credits.

Packwood’s plan would reach the goals for tax revision called for by Reagan, including a top individual tax rate of 35% and a $2,000 personal exemption for most taxpayers. Under the plan, however, tax rates would not be lowered until six months after tax preferences are curtailed on Jan. 1, 1987. Higher personal exemptions would go into effect for 1987, but the proposed increases in the standard deduction would be delayed until 1988.

Plethora of Brackets

The current plethora of tax brackets ranging from 11% to 50% would be slashed to just three rates--15%, 25% and 35%.

The standard deduction would be slightly more generous than the House bill--increasing to $5,150 for a joint return from $3,670 under current law; to $3,200 for singles from $2,480, and to $4,500 for an unmarried head of household from $2,480.

House tax writers had little reaction to the Senate committee’s effort to dictate in advance when tax law changes would go into effect.

“At this stage, it’s hard to take all this seriously,” one Ways and Means Committee staff member said. “If they don’t do a bill, we don’t have to worry about effective dates. And if they just worry about effective dates, they won’t do a bill.”

Ways and Means Chairman Dan Rostenkowski (D-Ill.) has already agreed to delay changes affecting municipal bonds until Sept. 1, 1986, but has resisted so far other efforts to alter the dates in the House tax bill.