Support for New Plan Revives Hopes for Senate Tax Bill

Times Staff Writer

The Senate Finance Committee marshaled strong support Tuesday for a new proposal to cap individual income tax rates at 26% to 27% while preserving popular deductions, renewing hope that tax reform legislation, considered near death only last week, could reach the Senate floor by June.

Senate Majority Leader Bob Dole (R-Kan.), emerging from a briefing by Finance Committee Chairman Bob Packwood (R-Ore.), said that the prospects for a tax system overhaul had “grown measurably” after Tuesday’s closed meeting. “It’s looking better. The rate’s down; it carries out the President’s concerns,” Dole said.

Packwood, who only Friday had abandoned his end-of-May deadline for producing a tax bill, said his panel may work through the weekend to draft legislation for formal committee action. “Two days ago, everyone had the bill dead,” he said. “If it’s this good and it seems this hot, let’s keep going.”

What sparked the euphoria was a refinement of a radical new plan, made public last week, that would scrap the current 14 tax brackets and their accompanying maze of deductions for a simpler two-tier system with rates of 15% and either 26% or 27%.


Preserves Deductions

Unlike last week’s proposal, the new plan preserves politically crucial deductions for home mortgage interest, state and local income and property taxes and charitable contributions. But it would repeal most other preferences, including the deduction for individual retirement accounts and the capital gains exclusions.

Under the version that drew the bulk of political support Tuesday, the standard deduction would be raised from $2,480 to $3,100 for a single return. Individuals would be taxed at the 15% rate for income under $18,000 and at 26% for earnings exceeding that level.

A married couple filing jointly would receive a $5,100 standard deduction and a $2,000 exemption for each dependent, with the 26% maximum rate kicking in when earnings exceed $28,100.


The committee estimated that the plan would slice the tax burden by 61% for those with incomes under $10,000 and 19.3% for filers with incomes between $10,000 and $20,000. Middle-class taxpayers would save between 3% and 7.5%, on average. One committee source estimated that the plan could exempt as many as 6 million people from paying taxes.

Replaces Earlier Plan

The proposal replaces an earlier and considerably more complex reform that Packwood had championed for months but was all but rejected by his own committee last week.

Sen. Bill Bradley (D-N.J.) predicted that the committee would resist pleas by the Capitol’s legion of lobbyists to preserve tax deductions that the new plan would wipe out. “What you have is a group of people on the committee that has seen the opportunity to do something bold. . . . I think it’s possible,” he said.

The proposal would reduce personal tax collections by $70 billion to $80 billion, which would be made up by closing loopholes in the corporate tax system. Several committee members, led by Packwood, claimed Tuesday to have chosen at least that much money in tax savings from a list of 15 to 20 corporate tax preferences marked for scrutiny. Other shortfalls might be made up by an increase in federal excise taxes on so-called luxury products.