Tax Chiefs $5 Billion Apart on Business Hike

Congress’ two chief tax negotiators ended a second round of secret talks late Wednesday night still $5 billion apart on the make-or-break issue of corporate tax hikes, and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) said for the first time that the full 22-member tax conference panel may be unable to agree on a tax-revision law before a scheduled congressional recess this weekend.

But a weary Rostenkowski and Senate Finance Committee Chairman Bob Packwood (R-Ore.) still expressed optimism that they could draft a tentative agreement for review by their 20 House and Senate colleagues as early as this afternoon.

“We’re this close,” Packwood said just before midnight, holding two fingers close together, as he left Rostenkowski’s Capitol office. Later, Rostenkowski said he still holds out hope that all 22 tax negotiators will approve an agreement before the recess.

“But, if we can’t,” he added, “it doesn’t mean we’re not going to get a bill. There’s too much invested in this reform package to ignore.”

A full agreement now appears to hinge on the extent to which Senate conferees will agree to corporate tax hikes beyond the $119.8 billion, spread over six years, that they offered to the House last week. The hike would allow individual taxes to be reduced by a similar amount.

After meeting for several hours with Rostenkowski on Wednesday, Packwood told Senate negotiators that the two men had tentatively agreed on a $124.3-billion business tax increase, a figure that several balky senators said they would support only grudgingly.

But, after ending their 12-hour bargaining session Wednesday, Rostenkowski said he still hopes to obtain a $129-billion corporate tax increase “and do good things for people who will have their businesses and lives affected by this tax bill.”

The figure, about $5 billion more than the $124.3 billion that Packwood had suggested, could break apart the Senate negotiators’ shaky support for tax overhaul, several senators indicated Wednesday. Sen. John H. Chafee (R-R. I.). one of the strong backers of tax overhaul, warned that some key Senate negotiators already feel “salamied” by the $124.3-billion proposal.

Fading Momentum Feared

Packwood and Rostenkowski have urgently sought to seal a tax-overhaul agreement with their House and Senate colleagues before Congress begins its three-week recess this weekend. Their fear is that any momentum for tax revision will fade if lawmakers are pelted with another month of election-year pleas from lobbyists and others.

Although both House and Senate conferees have largely agreed on the lower rates and loophole-closings of a new individual tax code, their 20 days of talks have snagged over the issues of how and how much to raise business taxes. After the two sides reached an impasse on the issue on Tuesday, Packwood and Rostenkowski began one-on-one talks to iron out an agreement to submit to their colleagues.

Whatever accord the two men reach must be approved by the House and Senate bargaining teams and then will be submitted to each house for another vote. The conferees are trying to resolve differences between separate tax bills passed earlier by the two chambers.

Earlier Wednesday, Rostenkowski had been upbeat in his first specific comments on his talks with Packwood. “We’re really walking in an egg field,” he had said, but “progress has been made, one chairman to another chairman, one negotiator to another negotiator. I’m very pleased with what’s happened so far.”

Gambit Abandoned

As part of their accord, Packwood had agreed to abandon a money-raising gambit that his Senate colleagues had counted on to soften the corporate tax hike--a crackdown on tax evaders that was designed to raise $10 billion from businesses and $7 billion from individuals over the next five years.

By agreeing that tax negotiators cannot count on additional revenues from tougher IRS enforcement, Packwood left himself the difficult task of persuading his balky tax team to extract an additional $14 billion in corporate revenues.

To reach that goal, Packwood hinted, it is likely that the proposed top corporate rate of 33% will be bumped up by at least one percentage point. However, Packwood said that the two chairmen “haven’t yet raised the rate.”

The emerging accord won generally favorable reviews from several of the Senate bargainers, many of whom had only reluctantly agreed last week to an increase in business taxes of $119.8 billion.

After being briefed by Packwood, Sen. Lloyd Bentsen (D-Tex.) called the $124-billion corporate hike “something that could be lived with, (but) only if we’re satisfied with how you flesh it out” among industries.

Not Near Conclusion

Both Packwood and Rostenkowski acknowledged that the head-to-head negotiations were still far from reaching a conclusion. And Rep. Richard A. Gephardt (D-Mo.), after being consulted by Rostenkowski, cautioned that the two are “a long way from concluding this thing.”

But aides on both sides expressed optimism that the two chief tax writers could settle on a total package in time for the tax conferees to wrap up most of their work by the end of the week.

The main goal behind revising the tax code is to limit tax breaks in exchange for lower rates and to shift some of the tax burden from individuals to corporations. In the past few weeks, both sides agreed on most of the provisions directly affecting individuals but were unable to make much progress on business tax provisions.

The high-level talks between Rostenkowski and Packwood began Tuesday evening after tax conferees agreed to turn over negotiations to the two chairmen because they were unable to resolve those differences among themselves.