Panel OKs Action After Deadlock in ‘Nasty’ Session : 2 Top Conferees to Seek Tax Compromise

Congressional negotiators, unable to make progress among themselves on compromise tax legislation Tuesday, authorized the chief House and Senate tax writers to work out an agreement on the key issues.

The move, made after tax conferees traded charges in what Sen. Daniel Patrick Moynihan (D-N.Y.) called a “pretty nasty” session, raised hopes for a breakthrough before the end of the week.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) and Senate Finance Committee Chairman Bob Packwood (R-Ore.) met Tuesday evening to begin a round of private talks on such issues as business write-offs, deduction of state sales taxes and tax preferences for specific industries.

Concessions by Senators

Senate bargainers acknowledged that they are finally prepared to accept some reduction in tax breaks for such favored industries as oil, mining and defense. “That’s what usually happens,” Sen. Lloyd Bentsen (D-Tex.), a staunch defender of the oil industry, conceded.

But Bentsen insisted that the Senate team, which has offered a plan to raise corporate taxes by $120 billion over six years, is not prepared to accept an overall increase in business taxes as steep as the $142 billion proposed by House bargainers.

“I don’t think there will be a bill unless the House comes down quite a bit,” he added.

Despite the harsh atmosphere of Tuesday’s closed session, most of the tax conferees said they remain confident that an agreement can be reached.

“I’m upbeat we’re going to have a bill,” Sen. John H. Chafee (R-R.I.) said. “We’ll have it together, with maybe a few loose ends.”

‘Nowhere to Go but Up’

And Rep. Charles B. Rangel (D-N.Y.) told reporters: “I’m very hopeful, because we were in such bad shape before we agreed to this. There was nowhere to go but up.”

For tax conferees to complete action by Friday, when Congress is scheduled to recess until Sept. 8, Packwood and Rostenkowski need to reach a compromise by Thursday, aides said.

Key staff members indicated that Rostenkowski and Packwood already had been tentatively exploring the outlines of a compromise package for several weeks. Any such plan, they said, is likely to include tax rates one or two percentage points higher than the tentatively adopted nominal 27% top individual rate and the maximum 33% corporate rate.

The prospects for an agreement finally appeared to improve after sessions in which the two sides avoided hard bargaining and instead attacked each other over the peripheral but emotion-charged issue of whether they can count on $17 billion in revenues over the next five years from tougher enforcement by the Internal Revenue Service.

$3 Billion for IRS

Despite confused signals from the Reagan Administration, Republican-led Senate conferees continued to cling tenaciously to their proposal to funnel more than $3 billion into tougher tax collection efforts to help bridge a serious revenue gap in the Senate bill.

“If the House is willing to insist that we (boost taxes) and let tax cheats escape,” Packwood told reporters after the first joint session broke up, “then I think we have reached a dead end.”

Without the extra revenues necessary to ensure that tax revision does not increase the deficit, Senate tax writers would have to dig deeper into the pockets of well-connected industries, such as two major defense contractors with large operations in Republican Sen. John C. Danforth’s home state of Missouri and timber firms vital to the economy of Packwood’s Oregon base.

Threat to IRS Seen

But House bargainers insisted that the Senate plan goes beyond the authority of the tax conference and said it threatens to undermine other sensitive IRS functions, such as processing returns and providing advice to taxpayers.

“It would take the ‘service’ out of the Internal Revenue Service,” Rangel said.

Although top Treasury officials appeared prepared to embrace the Senate plan, Lawrence Gibbs, the newly installed IRS commissioner, has expressed misgivings about the proposal. And House bargainers gleefully circulated a letter from President Reagan’s budget chief arguing that the IRS could not absorb any extra agents without major disruptions.