Senate Grants Break in Taxes to Phillips Oil

The Senate, resuming debate on its far-reaching tax overhaul bill, agreed Monday to preserve $100 million in special tax breaks for Phillips Petroleum Co., reinforcing the point that Friday’s decision striking a similar provision for Union Oil Co. was a one-shot move aimed at punishing Sen. Pete Wilson (R-Calif.) for his votes on other key amendments.

By a lopsided 73-14 vote, the Senate rejected a proposal by Sen. Howard M. Metzenbaum (D-Ohio) that would have eliminated two “transition rules” favoring Oklahoma-based Phillips, which is in deep financial trouble in part because of an expensive takeover defense against corporate raider T. Boone Pickens.

Los Angeles-based Unocal is in similar financial difficulty after taking on more than $4 billion in debt to fend off a raid by Pickens, chairman of Mesa Petroleum. In contrast, however, Unocal lost its special $50-million tax provision when Finance Committee Chairman Bob Packwood (R-Ore.) and Majority Leader Bob Dole (R-Kan.) joined in a 60-33 vote to eliminate the tax break.

The Unocal move may be the only modification made to the tax measure on the Senate floor, where the bill is expected to be overwhelmingly approved this week. After that vote, Wilson contended that the Senate leadership had retaliated against him for voting earlier to restore more liberal individual retirement account and charitable deductions to the measure.

On Monday, however, Packwood and Dole leaped to the rescue of Phillips’ tax breaks, which were sponsored by Sen. David L. Boren (D-Okla.), a senior member of the Finance Committee. Although Boren voted to weaken the overall bill in committee, he has been one of Packwood’s staunch allies on the Senate floor in heading off the amendments on IRAs and charitable deductions.

Although no other special tax preferences are expected to be eliminated from the bill on the Senate floor, Dole left open the possibility that several “legitimate transition rules” proposed by lawmakers would be accepted.

“I could think of one deserving one,” Dole told reporters, declining to identify the proposed change.

Meanwhile, only one serious challenge to the tax overhaul package remains to be debated. A proposal by Sen. George J. Mitchell (D-Me.) would drastically reshape the bill to provide a more generous tax savings to middle-income taxpayers by imposing higher tax rates on the wealthiest income group.

Increasing Other Taxes

“Our purpose is to increase the amount of tax relief for the middle class,” Mitchell said Monday. “What’s missing in this tax debate,” he told reporters, is that even as Congress is “reducing taxes based on the ability to pay,” it is also likely to move to narrow the budget gap by increasing other taxes, such as excise taxes, that fall more heavily on lower-income groups.

Mitchell is planning to offer an amendment this week that would drop the split-level 15% and 27% tax rates, replacing them with a more progressive system that would tax the lowest incomes at 14%, higher incomes at 27% and the top levels at 35%.

By contrast, the Senate bill would tax most taxpayers at 15% and would allow the wealthiest taxpayers to pay a top rate of no more than 27%. However, because of some unusual features in the measure, some families earning $75,000 to about $185,000 would face a tax of 32% on each additional dollar of income.

Mitchell’s bill would eliminate these features, returning to a more traditional structure in which taxpayers pay the maximum rates only at the highest income levels.

Packwood has said on several occasions that he has the votes to defeat Mitchell’s proposal. But Mitchell predicted that any final version of the tax bill that emerges from negotiations between House and Senate tax writers will be similar to his plan.