Tax Accord Achieved, Top Conferee Declares : Packwood Says He, Rostenkowski Have Resolved Major Issues; Full Panel Still Must Approve Bill

The Senate’s chief tax negotiator said early today that he and his House counterpart had agreed on a sweeping tax overhaul bill.

“On the major points,” Senate Finance Committee Chairman Bob Packwood (R-Ore.) said early today, “the deed is done.” He and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) met into the early morning hours to iron out the final aspects of their plan, which would bridge a $17-billion revenue gap that had stymied earlier talks.

The tentative accord still must be approved by the other tax conferees before they can wrap up a final package resolving differences between House and Senate tax overhaul proposals.

Rostenkowski held a meeting with his House tax negotiating team late Friday, and Packwood planned a similar meeting with his team this morning.

Packwood said he hopes the negotiators from both sides can agree by tonight on a compromise that would reduce taxes on individuals by slightly more than $120 billion over the next five years and increase corporate taxes by a similar amount.

The plan, Packwood said in an interview, includes a top personal tax rate no higher than 28% for most persons. Earlier, tax bargainers had indicated that the maximum corporate rate was expected to be 34%.

Both rates are one percentage point above those proposed in the Senate bill. But they are still far below the current top individual and corporate rates of 50% and 46%. Although rates would be cut sharply, businesses would lose some major tax preferences and individuals also would lose some tax breaks.

Earlier in the evening, Rep. Pete Stark (D-Oakland) had reported that “some big items are still open.” Roughly a half-dozen provisions, involving from $500 million to $1 billion each, were still unresolved, Stark said after a late-night meeting with House Democratic conferees.

None of the obstacles, however, were substantial enough to prevent a final tax overhaul plan from being approved by both House and Senate bargaining teams, Stark said. “That’s what (Rostenkowski) seems to think,” he said. “He wouldn’t be up working until 3 in the morning if he didn’t.”

The early morning effort became necessary when congressional tax analysts told Packwood and Rostenkowski on Thursday night that an earlier accord they had just reached would over the next five years leave tax revenues $17 billion shy of the amount that would be raised under current law. Corporate taxes accounted for $10 billion of the gap and personal taxes for $7 billion.

The emerging accord would bridge the entire $17-billion gap.

On the issue of corporate taxes, Senate negotiators agreed Friday afternoon to relax their objections to curbs on corporate tax preferences beyond those they had accepted earlier this week.

Had Dug in Heels

On Thursday night, Senate bargainers had apparently dug in their heels against raising any more revenues from businesses. “We won’t go up on the corporate side,” Sen. John H. Chafee (R-R.I.) told reporters Friday morning.

But, in a contentious session Friday, Senate bargainers gave Packwood enough maneuvering room to allow him to extract an additional $5 billion to $6 billion in corporate tax revenues by paring a variety of business tax breaks.

“It did look bleak when Sen. Packwood said he could not go back to his fellas for the $10 billion,” said Rep. Charles B. Rangel (D-N.Y.), a leading House conferee. But, since Friday morning, Rangel added, Packwood “found $5 (billion) or $6 billion he could pick up in the corporate area.”

The tentative accord would make up the other $11 billion from taxes on individuals. The agreement reportedly includes elimination, in 1989 only, of the annual adjustment of tax brackets to compensate for inflation, although the standard deduction and personal exemption would be raised that year to keep pace with inflation.

Tax Brackets Changed

In addition, the plan would tamper with the tax brackets. The original Senate bill nominally contained only two rates for individuals--15% and 27%--but it provided that, for families with taxable incomes of more than $75,000, the value of the 15% rate would be phased out. As a result, those taxpayers would pay a 32% tax rate on part of their income. The tentative accord would reduce the income level at which the 32% rate would become effective.

It initially appeared that Thursday’s revenue projections might prevent tax bargainers from completing action on a compromise plan before the congressional recess, which is scheduled to begin this weekend and run through Sept. 8. But Rostenkowski and Packwood, fearful that a three-week delay could halt the momentum behind tax revision, carried on negotiations throughout the day in an effort to overcome the remaining obstacles.

Sen. Bill Bradley (D-N.J.), a longtime advocate of tax revision who tried to help forge the accord by shuttling between the two sides, said: “As long as people are talking, it can be done.”

Rostenkowski, after a morning spent huddling with top Democratic political advisers, told reporters that he still expected to reach an agreement with Packwood. “I want a bill,” he said. “Packwood wants a bill. The question is: Can we convince our conferees?”

The rush to conclude an agreement between the two chief negotiators left several members of the Senate tax team uneasy about what might be included in the plan.

Additional Limitations

Packwood agreed, according to House and Senate staff members, to include in the final package additional limitations on a valuable tax preference for defense contractors, which had been defended by Sen. John C. Danforth (R-Mo.).

Late Friday evening, Packwood began disclosing a few details of the package to his Senate colleagues. Earlier, when asked whether the other 10 members of his tax team would accept the bargain he had struck with Rostenkowski, Packwood replied: “I haven’t the foggiest idea.”

He later conceded that he expected between two and four members of Senate team to vote against the accord, but he remained convinced that a majority would support the package.

A worried Sen. Malcolm Wallop (R-Wyo.), a staunch defender of the energy industry and other business groups, said: “I think (the tax bill has) become an obsession.”

And an aide to a Senate tax negotiator described his boss as “in intensive care. But I think he’ll recover.”