Accord Near on Framework for Tax Revision Bill

Congressional tax negotiators, meeting in private Thursday, moved close to agreement on a general framework for a tax revision bill that would resemble the Senate proposal to create a two-tier individual tax system with a top bracket near 27%.

The lawmakers received crucial new revenue estimates showing that the Senate bill is almost as generous to the middle class as the House proposal, undercutting House Democrats who have been arguing that their plan is significantly better for middle-income taxpayers.

The charge that the Senate bill would be unfair to the middle class “has almost evaporated,” declared Senate Majority Leader Bob Dole (R-Kan.), a key member of his chamber’s negotiating team.

Senate Finance Committee Chairman Bob Packwood (R-Ore.) said that the negotiators made “very, very good progress” in their first full day of closed-door talks, a view echoed by his House counterpart, Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.).

After a private evening meeting of the two, Rostenkowski said that the Senate’s proposal essentially would be the starting point for House-Senate negotiations on individual taxes. The Senate bill includes a two-tier rate system with 15% and 27% brackets, although some upper-income taxpayers would pay rates of 32% and higher on part of their income.

The House bill employs a three-tier system with rates of 15%, 35% and 38%.

The new revenue forecasts, which will be the fiscal yardstick for a compromise bill, suggest that some stumbling blocks will prove easier to overcome than once was thought. For example, it now appears that it will be relatively inexpensive for the tax conferees to preserve current deductions for individual retirement accounts, as long as IRA benefits are limited chiefly to taxpayers earning less than $50,000 a year.

“If IRAs survive--and they will--we think they’re going to have to be more targeted to the middle class,” Rep. Charles B. Rangel (D-N.Y.) vowed.

Serious Drawback

But the new projections uncovered a serious drawback in the Senate bill by demonstrating that it would worsen the budget deficit by about $21 billion over a six-year period. To fix that flaw, tax bargainers may be forced to accept somewhat higher rates than the Senate originally proposed and adopt many of the House’s proposals to boost taxes on corporations.

In direct comparison to the Senate package, the House proposal is projected under the new estimate to raise about $38 billion more in tax revenues than had been estimated earlier.

For the first time, tax writers now have a common set of numbers to use in comparing the two tax overhaul bills. Until now, they relied upon revenue forecasts prepared separately when each of the House and Senate proposals was being drafted.

According to the new figures, the Senate bill would provide a tax cut to individuals estimated at about $112.9 billion over six years, while only raising corporate taxes by $93 billion. The House would give individuals a tax cut totaling $140.7 billion but would extract $178.6 billion more from business.

The revisions all but resolve House Democrats’ persistent complaint that the Senate bill is too niggling to the middle class--roughly, those taxpayers earning $20,000 to $50,000 annually.

More Generous to Some

The revised numbers estimate that the Senate bill, once thought to be $20 billion stingier to middle-income taxpayers than the House version, now comes within $5 billion of equaling the House plan, and is actually more generous to some families.

The new figures indicate that the House bill gives a bigger tax cut to the huge $30,000-to-$40,000 range of taxpayers--an average 9.2% in 1988, versus the Senate’s 7.2%. But the Senate proposal is said to be more generous to other members of the $20,000-to-$50,000 tier.

Moreover, the new figures estimate that the Senate plan is much less generous than the House for taxpayers making more than $50,000, who are viewed as less in need of tax relief. It would give taxpayers in the $50,000-to-$75,000 range a 3.1% average reduction, compared to 7.1% in the House plan, and would grant $100,000-to-$200,000 filers a mere 1.2% average reduction, compared to the House’s proposed 5.9% break, according to the estimates.

Offset by Social Security

At the same time, however, revised forecasts suggest that even the generous tax cuts awarded the lower and middle classes would be rapidly sopped up by another, growing federal paycheck bite: Social Security.

The current Social Security withholding rate, 7.15% of the first $42,000 of income, will jump to 7.51% by 1988 and higher in later years.

The growing retirement levy means, for example, that those taxpayers making less than $10,000 annually, who would get an average 56.6% tax reduction under the Senate bill, would receive an overall federal tax reduction of only 15.8% in 1988.