No Tax Hike in Reagan’s Term, Officials Vow

Top officials of the Reagan Administration, in an orchestrated campaign to squelch any future effort to boost income tax rates above those in the pending tax overhaul bill, vowed Tuesday to hold the line on taxes as long as Ronald Reagan remains in office.

“You don’t need to worry about these rates being jacked up during this Administration,” Treasury Secretary James A. Baker III told a Capitol Hill rally of tax revision advocates. “I don’t think that’s in the cards.”

President Reagan reaffirmed that stand at a Rose Garden ceremony later in the day, and it was echoed by Senate Finance Committee Chairman Bob Packwood (R-Ore.), who suggested that Congress might move to prune a few more tax breaks next year if it needs to raise revenue in its never-ending quest to trim the deficit.

Bill Being Completed

As the Administration campaigned to protect lower tax rates, congressional negotiators were putting the finishing touches on the tax revision bill, which is expected to be completed Thursday or Friday. The bill, which would ultimately reduce the top personal tax rate to 33% from 50%, has been approved by a House-Senate conference committee and is expected to go to a vote in the House next Tuesday and in the Senate a few days later.

Although congressional approval is considered certain, tax writers still were sorting out requests for “transition rules”--tax law exceptions for individual industries and projects. They are also struggling with sensitive issues involving commodity traders, defense contractors and low-income housing investors.

The GOP pronouncements against higher tax rates were in reaction to remarks made earlier this month by House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.).

In explaining his adamant opposition to a national sales tax on consumption, which some lawmakers have suggested as a method of raising money to defray the deficit, Rostenkowski said that, if needed, he would support an increase in income tax rates as an alternative that would be fairer to low-income consumers.

But on Tuesday Rostenkowski made it clear that he would not oppose Reagan on the income tax issue and would not initiate an increase next year. “I don’t anticipate us raising the rates,” he told a tax conference sponsored by the Price Waterhouse accounting firm.

In his remarks in the Rose Garden, Reagan said: “We didn’t achieve this historic tax reform to have it undermined by the big taxers.”

And Packwood, the chief Senate tax writer, said at the tax conference: “I don’t think there is going to be any increase in the rates . . . in this Congress or the remainder of the President’s term.”

Under the tax package, the current top individual rate of 50% would be lowered to 38.5% next year and to a nominal top rate of 28% in 1988, although some taxpayers would pay as much as 33%.

Rostenkowski acknowledged that the most likely vehicle for any tax increase in the near future would be excise taxes on such items as gasoline, cigarettes and liquor. Already, House Democrats are moving to raise the $6.3 billion needed to help meet Gramm-Rudman deficit reduction law targets for next year by boosting excise taxes moderately.

Battle Over ‘Straddle’

As tax writers discussed possible temporary exemptions from the new code, which would grant fewer tax breaks to industry, Senate Majority Leader Bob Dole (R-Kan.) pressed for lenient treatment of about 70,000 commodity traders who are locked in a struggle with the Internal Revenue Service over paper tax losses from a type of commodity transaction called the “straddle.” The transaction, banned in 1981, was designed to generate tax losses. The IRS contends that the commodity traders owe $8 billion in taxes for the years before the straddle transaction was banned.

According to congressional aides, Dole told Packwood that he would drop his support for the tax bill unless it protected commodities traders from IRS attempts to recover those taxes. But Dole’s staff denied that he had threatened to abandon the bill over the commodity issue.

Rostenkowski, who proposed an “amnesty” in 1984 for professional commodity dealers, opposes the effort to broaden the lenient rules to all types of commodity traders. Although Dole has support from Treasury officials for his position, tax writers are worried about accepting provisions that might mean a major revenue loss in order to provide a tax advantage to a comparative handful of politically connected investors.

While the commodity trading issue remained up in the air, investors in low-income housing appeared to have lost their fight for protection from losses resulting from tax changes that would undermine tax advantages for existing low-income housing developments. Packwood told reporters that the final language would not soften the bill’s rules restricting investor write-offs of tax losses on all types of real estate investments, including low-income housing.

Another stumbling block is the final allocation of higher taxes between defense contractors and other types of contractors who are scheduled to lose the advantage of a tax break known as the completed contract accounting method.

With Congress expected to vote on the tax revision bill next week, Baker added a note of levity to the debate by reciting some doggerel called “The Tax Reform Shuffle,” a takeoff on the Chicago Bears’ “Super Bowl Shuffle.” The poem outlined the shaky legislative history of the bill, with such lines as:

“We drew up a plan, and sent it out in May/ But the special interests said: ‘Ain’t no way.’/ Rosty started hearings before the fall./ They were Gucci to Gucci in the hall./ All along it’s been a big tussle/ But we keep doing the Tax Reform Shuffle.”