Two Top Conferees Near a Tax Accord : It Includes Top Business Rate of 34%, Non-Deductible IRAs for the Affluent

The two chief congressional tax bargainers were on the verge Thursday of wrapping up a detailed package that they expect to resolve the differences between House and Senate tax overhaul proposals.

“Everything is in place,” Senate Finance Committee Chairman Bob Packwood (R-Ore.) said.

The expected agreement between Packwood and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) will have to be approved by the 20 other members of a House-Senate conference committee before the tax bill can go to the House and Senate floors.

However, Packwood said that last-minute give-and-take between the House and Senate conferees is likely to delay a firm agreement until this weekend, just as Congress is leaving for a three-week recess. “There are some things in it that some of (the conferees) are dearly opposed to,” he said.

It was unclear whether Packwood and Rostenkowski had managed to slash the top personal tax rate all the way to the nominal 27% rate in the Senate-passed bill.

Tax-Deferred Income

On the politically sensitive issue of individual retirement accounts, however, Packwood said that the package would allow millions of relatively affluent taxpayers covered by pension plans at work to continue to earn tax-deferred income on future contributions to IRAs. But the contributions themselves--up to $2,000 a year--would no longer be tax deductible.

For businesses, the tentative agreement includes a maximum tax rate of 34%, one percentage point greater than the rate in the Senate-passed bill.

Altogether, the tentative agreement would increase business tax payments by an estimated $124 billion over six years, compared to current law. That would allow taxes on individuals to be cut by the same amount without adding to the federal deficit.

For both individuals and corporations, the bill would eliminate a variety of cherished tax breaks, including the deduction for consumer interest payments and the business investment tax credit. The lower tax rates would more than offset the loss of tax breaks for the average individual but fall short of offsetting them for corporations as a whole.

The Packwood-Rostenkowski accord requires Senate negotiators to trim an additional $4 billion in corporate tax preferences beyond those that the Senate team had included in its latest compromise proposal to the House earlier this week. Of the total, $2 billion would come from general write-offs for investments and the other $2 billion from specific industries, including oil, defense and high technology.

Sen. Malcolm Wallop (R-Wyo.) said that negotiators from energy-producing states had accepted some cutbacks in oil and gas tax preferences--one of the key stumbling blocks to a final agreement--that would increase taxes on the oil industry by about $600 million above the original Senate bill.

‘Just Have to Wait’

“We think we have heard (Packwood) say he can sell” the oil compromise to Rostenkowski, Wallop said. “And, if we can’t,” he warned, “we’ll just have to wait until September.”

Rostenkowski and Packwood want to seal a tax-overhaul agreement before Congress begins its recess this weekend, fearing that it may be more difficult to restart negotiations next month if lawmakers are pelted with another round of election-year pleas from special interests during the recess. Even if the tax negotiators finish their work in the next few days, the House and Senate cannot pass the bill until after they return to work on Sept. 8.

Senate negotiators cautioned that the tax agreement they now expect to conclude this weekend could still be subject to minor adjustments after Congress returns from its recess. “I can’t believe there won’t be a chance,” said Sen. John H. Chafee (R-R.I.), “to vary a little bit on some details after brooding over these things.”

Under the tax revision proposal, the deduction for state sales taxes now appears certain to be eliminated for taxpayers in most states, including California.

Packwood told Senate negotiators that Rostenkowski, apparently willing to go even further than the Senate position, offered to abolish the state sales tax deduction. However, some Senate bargainers are holding out for the sales tax provision in their bill, which allows a partial deduction in states with little or no dependence on an income tax.

Rostenkowski’s maneuver appeared designed to put Packwood in the awkward position of undercutting a compromise he accepted to help assure support of the tax bill from senators in states without income taxes.

Rep. Charles B. Rangel (D-N.Y.), although refusing to confirm Rostenkowski’s sales tax proposal, said some people have complained that no state should benefit from the sales tax deduction if New York, which has a stiff income tax, cannot. “Let Packwood take that back to his Republican governors,” Rangel said.

Senate Position Accepted

Packwood told reporters that the House, which retained the sales tax deduction in its original bill, “basically” had accepted the Senate position on the issue.

Several other loose ends remained to be tied up.

Both Senate and House negotiators said there still was no final compromise on the issue of trimming a valuable tax break for defense contractors. Sen. John C. Danforth (R-Mo.), who represents a swing vote on the delicately balanced Senate tax team, has adamantly defended that tax break.

And a handful of key Senate conferees, Chafee said, were resisting a House proposal to limit the use of tax-exempt bonds by such large private universities as Stanford and Harvard to a maximum of $150 million each.

Obstacle Discounted

Another potential last-minute obstacle was brushed aside by Packwood, who said that he plans to ignore a fresh estimate by congressional tax experts that the tax overhaul plan would fall $10 billion short of raising the same revenues over the next five years as current law.

“That’s the third re-estimate I’ve had in six weeks,” Packwood said.

He said that he is sure that additional revenues could be found to ensure that the bill does not increase the budget deficit if later estimates bear out the most recent one.

“If I jumped every time there’s a new (revenue) estimate,” Packwood complained, “I’d be worse than a Mexican jumping bean.”