Senate Votes Curbs on Windfall in Tax Revision

On the eve of its expected approval of a far-reaching tax overhaul bill, the Senate agreed Monday to prevent the revenue windfall in the plan’s early years from being used to artificially close the federal budget gap.

The Senate also passed by voice vote an amendment strengthening the proposed new low-income housing tax credit in the Finance Committee bill so that it can be used to rehabilitate existing low-income apartments and to encourage more new housing for the poor.

The proposal, introduced by Sen. George J. Mitchell (D-Me.), would allow the low-income housing credit to be used in conjunction with other federal housing programs.

Baker Defends Bill

Meanwhile, Treasury Secretary James A. Baker III defended the Senate bill against charges that it is overly generous to wealthy taxpayers at the expense of middle-income families.

Citing figures that taxpayers with incomes between $30,000 and $40,000 would receive an average 5% tax cut while those above $200,000 would receive an average cut of 4.7%, Baker said: “It’s really not true that (middle-class taxpayers) get a significantly lower reduction than upper-income Americans.”

Baker, appearing on NBC-TV’s “Today” show, reiterated the Reagan Administration’s support for the Senate bill over the version approved last December in the House. “We wouldn’t mind seeing it passed as is,” he said, declining to go into changes the White House would like to see before a final version is enacted into law.

Senate approval of the tax bill is guaranteed, Republican leaders said Monday. “It’s going to be a big, big win,” Majority Leader Bob Dole (R-Kan.) said. “Almost unanimous.”

Opposition to Plan

So far, only two senators have expressed opposition to the bill. Sen. Carl Levin (D-Mich.) told a nearly empty chamber Monday that he would vote against the plan because “it will increase the taxes on many average middle-income people at the same time that it gives extraordinarily large tax cuts to some of the wealthiest among us.” Sen. John Melcher (D-Mont.) also said he would vote against the bill.

Levin also complained, however, that he would actually prefer to boost income taxes for everyone, using the money raised by eliminating tax deductions to help reduce the federal deficit.

The tax bill is designed to be “revenue neutral” over a period of about five years, gathering about the same in estimated federal revenues as current law. But in fiscal 1987, which begins on Oct. 1, the tax changes would boost revenues by about $22 billion, while losing nearly the same amount in 1989.

The deficit amendment, proposed by Senate Budget Committee Chairman Pete V. Domenici (R-N.M.), would smooth out the revenue roller coaster by forbidding the additional funds from being used to meet formal deficit-reduction targets contained in the Gramm-Rudman budget-balancing law. When revenues fall short, they also would not count against the deficit targets.

Without restrictions on the additional revenues in the early years, Domenici argued, “there would be substantial pressure to raise tax rates” in later years.