Senate Adopts Partial Tax Deduction for State Sales

The Senate, defusing a last-ditch revolt aimed at making major changes in its tax overhaul package, agreed Thursday to an amendment allowing a partial federal tax deduction for state sales tax payments.

The vote, engineered by Senate Republican leaders, paved the way for the Senate to complete action on the far-reaching bill Tuesday.

The sales tax amendment, approved on a voice vote, would affect taxpayers in fewer than a dozen states that raise little or no revenue from a state income tax. Taxpayers would be entitled to a deduction for part of their sales tax payments if their sales taxes were larger than their state income tax payments.

Would Identify Children

To cover the costs of partially restoring the sales tax deduction, the amendment would require parents to obtain Social Security numbers for their children--a move to prevent taxpayers from claiming exemptions to which they are not entitled.

The concession ended the hopes of Sen. Alfonse D’Amato (R-N.Y.) to restore write-offs for all contributors to individual retirement accounts. D’Amato, who lost a 51-48 vote last week to save the IRA deduction, was trying to put together a coalition of disaffected senators in support of one all-encompassing amendment to preserve tax breaks for IRAs, sales tax payments and government pensions.

Majority Leader Bob Dole (R-Kan.), insisting the Senate was “within striking distance of wrapping up this bill,” said that nearly all the amendments proposed by lawmakers late Wednesday night that once threatened to delay approval for days had evaporated by Thursday evening.

But Democrats warned that the Senate would become bogged down again if Sen. Jesse A. Helms (R-N.C.) insisted on going ahead with an amendment to forbid taxpayers from receiving a personal exemption for a fetus that briefly survived after an abortion.

Meanwhile, Senate Finance Committee Chairman Bob Packwood (R-Ore.) told a group of women tax lobbyists that the Senate would make only a few additional minor changes in the tax bill before approving it.

The only exception, Packwood said, might be the approval of an amendment by Sen. George J. Mitchell (D-Me.) to expand the use of the low-income housing tax credit. Packwood said he supports the amendment.

Says Exceptions Won’t Last

Packwood, acknowledging that he was being forced to accept a large number of local exceptions requested by senators as “transition rules,” said that many of them would be dropped before the bill finally becomes law.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), speaking at the same forum, predicted that negotiators would reach agreement on a compromise between the Senate package and the bill approved last year by the House. Rostenkowski later told reporters he hopes to have a bill for President Reagan to sign into law by early September.

Priority on Middle Class

Rostenkowski told reporters that Democratic House negotiators would aim to provide greater tax relief for middle-income families than the Senate bill provides. The Senate approved a non-binding resolution Thursday urging its negotiators to place a high priority on helping the middle class when the final bill is written.

The move to restore a partial sales tax deduction was led by Republican Sens. Slade Gorton and Daniel J. Evans of Washington, one of only six states that have no income tax. Five other states rely much more heavily on sales taxes than on income taxes.

Expect Full State Deductions

Gorton and Evans suggested that their amendment was only the first step toward restoring full deductibility for all state and local taxes in the final tax package. The House bill did not change the current deduction for state and local taxes.

Gorton said Senate leaders agreed on Wednesday evening to the amendment, which would allow taxpayers to deduct 60% of the amount by which their sales tax payments exceeded their state income tax payments. The agreement came just as D’Amato was lobbying senators on the floor to support his plan to restore tax preferences for IRAs, sales taxes and federal pensions.

D’Amato conceded that approval of the sales tax amendment ended any chance of winning a majority.

The Senate also approved an amendment to allow IRA holders to invest in gold and silver coins, and they made a slight change in the rules affecting employee stock ownership plans.

It overwhelmingly rejected a proposal to reduce individual tax rates by imposing stiff tax hikes on multinational corporations and turned back an amendment to reduce capital gains taxes for small business and farmers.