But Negotiators May Have to Hit Business Harder : House Accepts Senate Rates in Tax Bill

House tax negotiators agreed Friday to accept the low rates in the Senate bill as a starting point for developing a final tax overhaul package, but the move puts Senate bargainers in the awkward position of having to dig much deeper into corporate pockets than they originally had planned.

As a first step, Senate negotiators were being asked to agree on a plan to raise another $21 billion over five years--mostly from business--to prevent the package from increasing the federal deficit. “That’s our top priority,” said Senate Finance Committee Chairman Bob Packwood (R-Ore.).

But, as the lawmakers struggle in the next few weeks over which tax deductions to preserve, they are likely to be forced to hit business even harder or allow personal tax rates to creep up from the 27% top bracket tentatively established.

‘Preference Area’

Once tax bargainers begin to “work in a preference area, we’re going to expect you to pay for it,” House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) said he told the conferees. “Paying for it means raising the rates or dipping into the corporate reforms in the House bill.”

Now that House tax writers have accepted the Senate rate structure, Rostenkowski made it clear that he expects Senate tax writers to go along with many of the House proposals to eliminate a wider variety of corporate tax preferences. The move is aimed at forcing Senate Republicans to take the blame along with House Democrats if the final package does not end up with rates as low as in the original Senate bill.

“I’m satisfied we could work at a 27% individual rate and 33% at the corporate rate. But when we start moving the dollars around and working in the special interest vineyard, then we’ll make a decision as to whether we’ll increase the rates,” Rostenkowski said, adding: “I’d prefer not to do that.”

The Senate bill provides for individual rates of 15% and 27%, although some high-income taxpayers would pay rates as high as 32% on part of their income. The House had set rates of 15%, 25%, 35% and 38%.

Stake Out Positions

As tax writers moved to get down to hard bargaining in sessions today and again on Monday, House and Senate conferees staked out different positions on whether rate cuts should be delayed for six months after many deductions would be eliminated.

House lawmakers pushed to move up the rate cuts to the beginning of 1987 in conjunction with the paring of tax preferences, while Senate tax writers objected, apparently worried that the estimated $25 billion required to eliminate the so-called “stagger” would come out of such favored industries as oil, defense and mining.

Economy ‘a Little Fragile’

“I think you’re going to find it very difficult to correct the stagger,” said Sen. Lloyd Bentsen (D-Tex.). But Rep. Don J. Pease (D-Ohio) warned that delaying the rate cuts for six months would be a mistake because it would result in higher taxes for many taxpayers and could weaken the economy. “There’s a feeling the economy is a little fragile,” he said.

Taxpayers with incomes above $50,000, according to new data estimates prepared by the tax staff, would be hardest hit next year by tax revision. On average, higher-income taxpayers would experience tax increases in 1987 if the rate cuts are delayed six months, ranging from average increases of 4.4% for those with incomes between $50,000 and $75,000 to 10.7% for those with incomes above $200,000, according to these figures.

Such taxpayers, on average, would receive tax cuts in later years.