Plan to Restore IRA Deductions Disclosed

WASHINGTON — The movement to restore deductions for individual retirement accounts to the Senate tax bill appeared to be gaining support Tuesday as a bipartisan group of senators disclosed a plan with powerful political appeal that calls for boosting taxes on business and the wealthy to pay for an effective 15% tax credit for IRA contributions.

Sponsors of the amendment, led by Sens. Alfonse M. D’Amato (R-N.Y.) and Christopher J. Dodd (D-Conn.) and joined by California’s two senators, said the Senate would be vulnerable to political attack if it let the House take credit for saving IRA deductions.

“The House is going to come up with some IRA package,” Sen. Frank H. Murkowski (R-Alaska) said.

In an attempt to head off the adoption of an IRA amendment, the Senate leadership Tuesday evening proposed a non-binding resolution urging Senate negotiators to restore IRA deductions at a conference with House lawmakers. No vote was taken on the resolution, but the move was opposed by supporters of an IRA amendment.

As the Senate wandered aimlessly through the tax bill for a third day without taking any votes, lawmakers delayed introducing any of their amendments, instead sparring with each other at private meetings and news conferences.

“Nobody wants to be first,” Senate Majority Leader Bob Dole (R-Kan.) said. “We told people this would be exciting,” Dole commented acidly on the lack of action during the first days Senate proceedings have been carried on cable television. “I think we have to redeem ourselves around here . . . and start offering amendments.”

At the White House, President Reagan again urged Republican leaders to keep the tax bill free of amendments, including a proposal by Sen. Gordon J. Humphrey (R-N.H.) to take away tax exemptions from nonprofit organizations that perform abortions.

Humphrey said he prefers to offer his amendment Thursday, after other proposals have “broken down this no-amendment barrier,” adding that he does not intend to delay action extensively on the bill by engaging in “dilatory” tactics.

Senate Finance Committee Chairman Bob Packwood (R-Ore.) told reporters he had the votes to defeat Humphrey’s amendment.

Most of the attention Tuesday remained focused on IRAs. Under the Senate Finance Committee package, taxpayers who are covered by company pensions would no longer receive a tax deduction for contributing to an IRA. Those without pensions would be free to take a full deduction, which could be worth as much as 32%, or $640 for a maximum $2,000 contribution, for many high-income taxpayers.

By contrast, the amendment would allow the estimated 20 million taxpayers with pensions to receive an immediate tax break for their IRA contributions but would limit it to a 15% tax credit for everyone, or a maximum of $300 in tax savings on a $2,000 contribution. Although taxpayers covered by company pensions would be better off under the proposed amendment, many of those without pensions would receive a smaller benefit under the amendment than under the Finance Committee bill.

Under current law, for example, an individual in the 33% tax bracket who makes a $2,000 IRA contribution would receive a tax savings of $666. Under the new proposal, no matter what tax bracket the individual is in, a $2,000 IRA contribution could only receive a $300 tax savings.

The IRA amendment would pay for the estimated $14 billion in lost revenues over five years by toughening even further the minimum tax on corporations and individuals by boosting it from 20% to 22.6%.