House Plan to Offer Low Taxes, Save Deductions

House negotiators toiled into the night Wednesday to draft a so-called “big bang” income tax proposal melding the low tax rates approved by the Senate with the House’s generous deductions.

Billions of dollars in additional corporate taxes would prevent the mixture from draining revenue from the federal Treasury.

To Be Offered Today

The new plan, to be offered to Senate bargainers today, is “a complete package of those parts of the House (tax) bill which we think ought to be retained” in a final bill, one of the negotiators, Rep. Don J. Pease (D-Ohio), said.

Among other provisions, Pease said, the plan would retain the deductions for state and local sales taxes that would be all but abolished by the tax overhaul bill passed by the Senate last month.

And it would partly preserve the deduction for contributions to individual retirement accounts, he added. The most popular approach among the tax conferees would limit the IRA deduction to taxpayers earning less than $50,000 a year.

Senate May Balk

But the Senate, which Tuesday grudgingly offered to add $27 billion in new corporate taxes and $3 billion in taxes on individuals to its own proposal, appeared unwilling to hit business even harder to raise money for the House’s favored benefits for individual taxpayers.

As the House conferees deliberated, tax committee aides released figures showing that at least 24.4 million individuals and couples would experience tax increases next year under the Senate-passed bill, which is the starting point for the bargaining. By comparison, 72.6 million households would have tax decreases under the plan.

And those figures assume that the bill’s tax rate reductions would become effective at the same time as its elimination of various tax breaks. But, as written, the bill would delay the rate reductions for six months, and tax committee aides said that that would add 2.1 million households to the ranks of taxpayers who would pay more in the first year.

No Data for House Bill

Comparable figures for the House bill, passed last fall, are not available. But the White House’s original tax overhaul plan, announced in mid-1985, would have raised taxes for 22% of all households and left another 22% no better off than under current law.

At the heart of the tax negotiations is how much to increase corporate taxes to provide relief for individual taxpayers. The House-passed bill would boost business taxes by an estimated $179 billion over a six-year period and cut taxes on individuals by $141 billion; the Senate bill would boost business taxes by only $93 billion and provide $113 billion in tax cuts for individuals.

Tax bargaining began in earnest Tuesday, when Senate negotiators proposed to eliminate $30 billion in deductions and other tax breaks from their bill. Of that sum, $21 billion was required to keep the Senate bill from adding to the federal deficit, and the other $9 billion was intended to finance some of the middle-class tax relief demanded by the House.

The House proposal pieced together Wednesday is expected to require at least an additional $30 billion in new revenue, mostly from businesses, and to provide still more middle-class tax relief, aides said. But Senate bargainers, including John C. Danforth (R-Mo.) and Malcolm Wallop (R-Wyo.), have complained that another round of new corporate taxes would stall the economy and increase unemployment.

Oil Tax Breaks Targeted

It was not clear Wednesday how many additional corporate tax breaks have been targeted by the House. But, in talks with reporters, Pease said that his fellow negotiators want to abolish two cherished tax breaks for oil and gas companies in current law, a step that would raise $2.3 billion over five years. That would not sit well with the Senate negotiating team, which is heavily composed of oil state lawmakers who have been vital to the bill’s success in the Senate.

And Pease said that the House would compromise with the Senate over a big-ticket issue, business write-offs for property and equipment, by asking that the final bill raise only 70% of the $38.3-billion difference in the revenues that the House and Senate bills would raise by curtailing that tax break.

But that 70%, or about $27 billion over five years, is far above the $6.9 billion that the Senate reluctantly accepted in its offer to the House on Tuesday.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) allowed only Democrats from his conference committee team to attend Wednesday’s strategy session, which he characterized as “going very well.” The heavily outnumbered House Republicans, he said, would be invited to the sessions when the group’s work is “perfected.”