Senators Offer Plan to Raise Tax Revenues

Senate negotiators, moving to counter forecasts that their tax revision proposal would widen the federal deficit, opened serious bargaining on a final tax bill Saturday by proposing changes to raise $25.9 billion in an effort to solve their deficit woes and give added tax relief to the middle class.

But the proposal, which includes sensitive new crimps on mortgage-interest deductions and popular 401(k) retirement plans, drew a scornful response from the House’s tax conferees, who called for the Senate to tap big business and not the average taxpayer.

“There are some things on the list that I think my colleagues in the House . . . would not agree to,” Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, told reporters. He declined to detail the objections.

Other House members were more blunt. Rep. Richard A. Gephardt (D-Mo.) called the offer “totally fraudulent,” and Rep. Marty Russo (D-Ill.) said the plan “insulted our intelligence.”

The 16-point Senate proposal would raise roughly $5 billion for added tax relief to the middle class and another $21 billion to make the bill “revenue neutral,” so that it would neither raise nor lower the nation’s total tax take.

‘Real Forward Movement’

Sen. Bill Bradley (D-N.J.), an architect of the tax overhaul proposal, said the Senate offer “indicates a real forward movement” in bargaining. But Sen. John C. Danforth (R-Mo.) conceded that the list consisted largely of “a lot of odds and ends.”

One of the most contentious would keep homeowners from borrowing against their dwellings to skirt a proposal in the Senate bill that would bar taxpayers from deducting the interest on consumer credit.

Under the proposal, which would raise $3.5 billion over five years, taxpayers would be barred from deducting interest on home mortgages when their total interest payments exceed the purchase price of their homes plus the cost of home improvements.

Among the others is a plan to limit employee contributions to the increasingly popular 401(k) retirement plans to a maximum $5,000 a year instead of the $7,000 now proposed. Other proposals would clamp down even harder on sales tax deductions, speed up payroll tax payments from state and local employees and eliminate the 25% research-and-development tax credit after three years, instead of the proposed four.

May Restore IRA Deductions

Senate Finance Committee Chairman Bob Packwood (R-Ore.), leader of the 11-member Senate negotiating team, said some of the $5 billion for middle-class tax aid included in the Senate’s proposal might be used to restore some of the deduction for contributions to individual retirement accounts.

The Senate has proposed to end IRA deductions for those already covered by pension plans, but some of the $5 billion could go to revive the tax break for middle-class taxpayers while ending it for most wealthier ones, he said.

House members, meanwhile, are pressing hardest for the Senate to go along with their plan to eliminate the so-called “stagger,” a six-month lag between the end of tax deductions in a new law and the beginning of lower individual tax rates. Unless the stagger is ended, millions of taxpayers would be faced with a tax increase next year, although they could expect tax savings in later years.

Ending the stagger would cost about $25 billion, making it perhaps the most costly addition to the tax overhaul package. Packwood said Saturday the price tag for the change could be so high that it might only be financed by raising tax rates above the two 15% and 27% tiers in the Senate bill.

Favors Preserving Low Rates

The Senate bill’s low rates have been the linchpin of its political support. Packwood indicated he favors preserving them at almost any cost.

The question, he said, is “what would we rather do: raise everyone’s taxes to eliminate the stagger, or keep the stagger and not raise the rates?”

Saturday’s disagreement abruptly ended a week in which House and Senate lawmakers had been enthusiastic about prospects for a quick compromise.

Rostenkowski captured the new air of the talks Saturday, after Senate lawmakers were closeted for hours in a private session, trying to assemble their list of revenue raisers.

Predicts Difficulties

“They must be having a tough time down there, just trying to come up with $21 billion,” he said. “Can you imagine what it’s going to be like when they get down to the real stuff?”

Meanwhile, President Reagan predicted that the economy would improve once uncertainty about the new tax code is resolved. Speaking in his Saturday radio address, he said corporations were awaiting details of the tax law before deciding how to invest in factories and equipment.

“I realize our economy is waiting for tax reform’s lower rates,” he said. “In that sense, this temporary lower growth we’re experiencing is a sign of anticipation about the future.”