Senate Approves Tax Bill, 74 to 23 : Broad Revision That Shifts Burden to Corporations Is Sent to Reagan

The Senate on Saturday overwhelmingly approved and sent to President Reagan one of the broadest revisions of the federal tax code since Congress devised the income tax in 1913.

The 74-23 vote, following the House’s 292-136 approval of the bill Thursday, rang out a political drama to rival any Hollywood cliffhanger. During its two-year odyssey, tax-overhaul legislation was declared dead several times and was actually defeated last fall, in a House procedural vote, before the President resurrected it.

The rescues--by politicians of both parties--paid off richly Saturday. The bill shifts $120 billion in taxes from individuals to businesses over five years, softens the annual tax bite for four of every five households and wipes out a labyrinth of rates, loopholes and deductions. It removes 6 million of the poorest taxpayers from the tax rolls and grants huge tax relief to millions more.

Reagan to Sign It

Both California senators voted for the bill.

Reagan already has promised to sign the legislation, perhaps in a ceremony this week. Some procedural nits still dog the bill’s route to Reagan’s desk, congressional aides said, but they do not appear serious.

A jubilant Sen. Bob Packwood (R-Ore.), who authored much of the compromise this summer with House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), said Saturday that the lengthy tax debates “are about more than money and they’re about more than economics. They’re about fairness. And this bill is fair.

“You can go back to the coffee shops, textile mills, timber mills, farms and ranches,” he told the lawmakers. “You can hold up your head and say we did something good for America.”

The legislators who disagreed fulminated for two days before Saturday’s vote, lambasting the bill in speech after speech as an anchor on economic growth and a fatal blow to hopes for balancing the federal budget.

“For our economy, this is the wrong bill at the wrong time,” said Sen. Carl M. Levin (D-Mich.), who warned that the passage of the bill was “setting the stage for making deficit reduction more difficult and less fair.”

Official estimates are that the bill will neither ease nor worsen the federal deficit over a five-year period, but it will cause huge swings in individual years. Next year, for example, the phase-in of the legislation is expected to produce an $11-billion windfall for the government. In fiscal 1988, it could drain the federal Treasury of $17 billion.

Levin and Sen. John C. Danforth (R-Mo.), who led a hopeless fight against the measure, predicted that the new code will raise scores of billions less in tax revenue than was claimed, and they said the loss of business deductions and credits will cripple factory construction, American competitiveness and eventually the entire economy.

“No reduction in tax rates compensates for the loss of a job,” Danforth said.

Some suggested that a weakening economy could soon send Congress scrambling to rewrite the bill.

Well-Known Quip

Referring to Rostenkowski’s well-known quip that he would hang a “gone fishing” sign outside the Ways and Means Committee chamber after passage of the bill, Finance Committee member Lloyd Bentsen (D-Tex.) warned: “Don’t rent out that room.”

However, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.), who had earlier been leery of attempting tax overhaul at a time of record deficits, said he had “come full circle. . . . There is no doubt in my mind (the tax bill) will be good for the American economy.”

He predicted that it will lower interest rates by as much as two percentage points over the next two years.

In the end, the attacks could not stop a bill that even one critic allowed was based on “a great idea.” For the measure reflected a political calculus so compelling that it overwhelmed all attempts to refute it.

Loopholes Dismantled

Sen. Bill Bradley (D-N.J.), one of the original proponents of tax revision, put it simply: “We have to remember that more people paid taxes in 1984 than voted for president in 1984.”

Bradley called the bill a victory for those people, the average taxpayers, over “this group and that group, this interest and that interest” that had benefited most from the present tax code.

The legislation dismantles the jury-rigged structure of loopholes and shelters that many said had undermined faith in the tax code’s fairness. Compliance with tax laws has fallen steadily in recent years.

It also marks a departure from the government’s traditional use of the tax code as a means of encouraging initiatives that had been deemed in the nation’s best interest. The individual retirement account, for example, is a tax incentive for people to save for their retirement, and the investment tax credit was designed to spur companies to rebuild and refurbish aging plants.

Bill’s Selling Point

Abolishing such breaks made enemies for the bill, but it freed tax revenues to finance what proved to be the bill’s unbeatable selling point: low rates.

When the law becomes fully effective in 1988, individuals will pay taxes at fixed rates of either 15% or 28% instead of the current law’s 15 separate rates, rising to 50%. More affluent households--singles making more than $43,150 and filers of joint returns with earnings exceeding $71,900--would lose some deductions and effectively pay rates of 33% on income above those break points.

The effective tax rate returns to 28% on income beyond $100,470 for singles and $171,090 for couples. In addition, for joint returns, the ceiling on the 33% bracket is extended by $10,920 for each personal exemption beyond the first two.

Corporations also were sold on a huge rate cut, from the current law’s 46% to 34%. But they will pay a larger overall tax bill because the new law closes loopholes, ends credits that wiped out taxes for companies that build new factories and buy equipment, and effectively forces all profitable companies to pay some tax.

Members of both parties have agreed that the bill could never have survived without the backing of an enormously popular President. “You may have given up on us a time or two, but you never gave up on the bill,” Senate Majority Leader Bob Dole (R-Kan.) told Reagan by phone after Saturday’s vote.

Rostenkowski started the bill on its journey through Congress last year. He muscled it past opponents, winning votes one by one. But the trade-offs needed to win those votes ballooned the bill’s top individual tax rate to 38%, disappointing those who had hoped to keep it below 35%.

On a normally routine procedural vote, rebellious House Republicans blocked the bill from coming to the House floor, and Reagan had to make a rare trip to Capitol Hill to rescue his top domestic priority from oblivion.

Its Senate debut was a disaster. Packwood’s first effort was so riddled with new loopholes by last spring that most experts, and journalists, wrote it off as dead.

In sheer desperation, facing the prospect that the President’s tax initiative would die at the hands of his own party in the Senate, Packwood returned to Bradley’s discarded theme of lower rates and fewer deductions. The move startled almost everyone, but it got the legislation back on track, this time for good.

The low-key Bradley shared a podium Saturday after the Senate triumph, and jokingly contrasted the moment with post-game interviews of his earlier professional basketball career.

Asked to compare this victory with National Basketball Assn. championships of old, he replied with characteristic understatement: “It’s not the same. I’m wearing a full suit of clothes.”