Back Room Magic

Just two weeks ago, the Senate Finance Committee seemed determined to kill tax reform by engaging in the congressional version of “The Price is Right.” The committee was throwing tax benefits at special interests in every direction. And to compensate for its generosity, Chairman Bob Packwood (R-Ore.) proposed to raise billions in new excise taxes on gasoline, cigarettes and beer and other alcoholic beverages. This tactic prompted the forging of a strong and unusual coalition of opposition that almost certainly would have doomed the bill had it ever reached the Senate floor.

Faced with massive protest, Packwood took the whole tax reform issue into the back room for further discussion in closed sessions of the Finance Committee. That is not usually a sign that the public good is going to be served. But this time, it has resulted in a pleasant surprise.

Packwood emerged Friday to announce that a majority of the 20 committee members seems to have agreed on a plan that really appears to meet the spirit of tax reform set down by President Reagan two years ago. There would be just two brackets for individuals, 15% and 27%. The maximum corporate income tax would be reduced from 46% to 33%, although business would lose billions through restrictions of existing tax deductions and credits. There would be no new excise taxes. Most of the important deductions available to the poor and middle-income Americans would be retained.

The Packwood proposal resembles the original Treasury Department plan, which had received strong commendation and support from a wide variety of respected tax experts and special interest groups. Treasury I was later modified by both President Reagan and the House of Representatives so that it became tax revision, but not true reform.

There still are some major questions to be answered about the latest Packwood proposal, such as its effect on savings, investment and productivity. But for now, it appears that whatever magical transformation took place in that Senate back room has got Congress back on the track to real tax reform.