Packwood Proposes End to Itemized Tax Deductions

The Senate Finance Committee went behind closed doors Thursday to discuss whether to continue efforts to overhaul the federal income tax, including a new proposal by Chairman Bob Packwood (R-Ore.) that would allow no itemized deductions.

The latest plan, prepared for Packwood by the staff of the Joint Committee on Taxation, also would repeal preferential tax treatment of individual retirement accounts and capital gains and result in a maximum individual tax rate of 25%.

Apparently a majority of the members want to continue to write a bill, Sen. Bill Bradley (D-N.J.) told reporters. Bradley, a leader in the drive for a new tax system, said he sensed “a turn toward . . . basically putting everything on the table on the loophole side.”

180-Degree Turn

That would represent a 180-degree turn for the committee, which in 14 days of public meetings has displayed a penchant for retaining, rather than eliminating, special tax benefits for business. So far, the panel has extended benefits that would cost $29 billion more over five years than would the tax plan recommended by Packwood.

Bradley said neither Packwood nor any other member proposed any new plan during the session and there was no vote.

Another person familiar with the meeting said Packwood outlined a possible new approach, which would repeal all itemized deductions allowed by present law--including those for home mortgage interest and medical expenses.

That plan, more radical than any seriously being considered in Congress, would include a maximum individual tax rate of 25%, half the present top rate. President Reagan has called for a top rate no higher than 35%.

Exemptions, Deductions

Staff members who studied Packwood’s plan said it would raise the personal exemption to $2,000 for all but the wealthiest taxpayers and boost the standard deductions to $4,650 for joint returns and $2,850 for single people.

A couple filing a joint return would pay a 25% rate on all taxable income--after deductions and exemptions--over $35,000. A single person would be subject to the 25% rate after taxable income topped $27,000.

Overall, Packwood’s new proposal would cut individual income taxes by $95 billion over the next five years, raise corporate taxes by $70 billion and make up the difference with a $25-billion increase in consumer excise taxes. That would represent a major scaling back of Packwood’s earlier plan to raise excise taxes by $75 billion.

The new plan includes a 20% “minimum tax,” a toughened version of an existing law aimed at ensuring that wealthy people and profitable corporations pay some tax regardless of how many deductions they claim.

Packwood said the private discussion produced an interesting reaction. “It certainly is worth pursuing more,” he said.