Distasteful Options Studied : Panel Races the Clock on $19 Billion in New Taxes

How would you like to create $19 billion in new taxes in three weeks?

That’s the unenviable task of the House Ways and Means Committee, which today must begin choosing among many distasteful options: making consumers pay more for cigarettes, beer and wine; taking a bigger tax bite out of estates; hiking the gasoline tax, or picking something else from a list of ideas long enough to fill a 300-page book.

The tax battle is on again, just nine months after President Reagan signed the biggest tax revision bill in history.

Already, angry beer drinkers have flooded congressional offices with 50,000 letters protesting any plans to make a six-pack more costly, and trucking companies are driving hard to avoid having to pay more at the gas pump.

But Congress adopted a Democratic budget that calls for $19 billion in new taxes next year, and the Ways and Means Committee must provide a detailed blueprint by the end of July.

It’s a tough job made all the more difficult because President Reagan has threatened to veto any tax bill and because the Democratic majority on the committee cannot make up its collective mind about which taxes are politically palatable.

“There are no real attractive options available to us,” says Rep. Robert T. Matsui (D-Sacramento), a committee member. “My guess is it will be a cats-and-dogs bill, with a lot of small provisions. We add them up and come close to what we need. But right now, we don’t have a majority of votes for any package.”

For the Democrats, the biggest motivation behind completing the tax task is the specter of what would happen to them if they did not. At the very least, the party’s lawmakers, supposedly in the driver’s seat with their newly won majority in both houses of Congress, would appear disorganized and ineffectual, and Reagan would score a resounding victory. At worst, $19 billion in expenses they budgeted could wind up being added to the national deficit, undercutting the high-profile efforts to whittle the debt and exposing Democrats to a severe political backlash.

‘Irritates Me’

“I will do everything I can” to get a tax bill passed, said Rep. Dan Rostenkowski (D-Ill.), the committee chairman. “This is not a pleasant situation--it really irritates me, with the President out there kicking me around.”

Reagan, whose budget proposal for less domestic spending was summarily rejected by Congress as inadequate, has been energetically stumping the country this summer, denouncing the “tax and spend” Democrats as they ponder how to proceed.

On Friday, Reagan proposed amending the Constitution to make tax hikes more difficult by requiring that they could only be imposed with approval of an unspecified “super” majority of Congress.

“He’s just having too much fun bashing the Democrats,” Rostenkowski says.

For all the difficulty the Democrats face in choosing who should pay more, Rostenkowski does think he has a hole card once the list is drawn up.

Strangely enough, it is a new budget balancing measure being pressed by conservative Republican Sen. Phil Gramm of Texas, who in the past has been a leading opponent of spending programs that Rostenkowski and others have championed.

Two years ago, Gramm, in the now famous Gramm-Rudman-Hollings bill, managed to win approval for a schedule by which Congress would reduce the annual budget deficit each year through 1991. Now Gramm is trying to get an enforcement provision that would force Congress to meet deficit target figures, since it has exceeded the previous ones each time.

Rostenkowski believes that Gramm’s proposed penalty for exceeding a set target--an automatic, across-the-board budget cut for all programs to bring the budget down to the limit--would make the President reopen his mind to possible tax increases. Without the $19 billion in added tax revenue, the deficit limit surely would be broken and defense programs the Administration holds dear would suffer sweeping cuts with all the rest.

“It may be the only way to get this guy’s attention,” said Rostenkowski, who said he is considering supporting the proposal.

So fortified, Rostenkowski will begin sounding out his committee when Congress returns today after its holiday recess, searching for a tax formula that can win passage. He must proceed gingerly--the Republicans will not participate, and the defection of five Democratic members can doom the bill in committee.

Any of the options for new revenues seem certain to offend one vociferous group or another, and committee members will be feeling the heat as they weigh the benefits.

The only recourse considered entirely off limits is a change in the income tax rates. Reagan and Rostenkowski have rejected any notion of tinkering with the tax schedules forged through so many fragile and intricate compromises in the landmark tax revision legislation last year.

Of the candidates that remain, excise taxes are a prime prospect. The current federal taxes are 16 cents on a pack of cigarettes, 9 cents on a gallon on gasoline, $1.05 on a fifth of liquor and about 16 cents on a six-pack of beer.

Doubling the tobacco tax would raise $3 billion. Adding a dime to the gasoline tax would produce $9 billion. Doubling the liquor tax would yield $2 billion and the beer tax $1 billion.

That would take care of most of the needed sum.

However, says Sen. George J. Mitchell (D-Me.), a member of the Finance Committee: “Excise taxes are easy, but easy and fair is not the same thing.”

Those taxes hit the poor and working class the hardest because they do not take into account ability to pay. The 6 million low-income people dropped from the tax rolls by last year’s tax revision would find their tax burden substantially increased by the higher costs of these common vices and necessities, Mitchell said.

Meanwhile, opposition to such increases is being rallied by the Coalition Against Regressive Taxes, an aggressive and well-organized alliance working out of the American Trucking Assns. headquarters here. The gasoline, beer, wine, and distilled spirits industries are represented.

At the grass-roots level, organizers have been circulating petitions at nightspots, rock concerts and other local events in a number of cities, enlisting the support of beer drinkers and car and truck drivers.

Nevertheless, committee members are resisting ruling out these taxes because of the substantial amount of money they could produce.

Energy taxes are another prospect, but here regional politics are very touchy.

A $5-a-barrel tax on imported oil could raise a formidable $8 billion. The fee looks particularly attractive to legislators from oil-producing states because it also would spur domestic oil prices to rise, boosting their regions’ battered economies.

But strongly opposed are many members of Congress from the East and Midwest, where more homes are heated by fuel oil and millions of consumers would bear higher prices.

Making an energy tax acceptable would require figuring out a way to impose it on other fuels too, so that “it goes across the whole country, with everybody equally sharing” the burden, Rostenkowski says.

Estate Taxes

For committee liberals who want to direct the new taxes primarily toward the wealthy, estate taxes will be a top choice.

Under current law, only estates worth more than $600,000 are subject to taxes upon inheritance, and only for the amount over that sum. One proposal would change that by requiring heirs to pay “capital gains” taxes on the property they received. It would make subject to taxes the amount the property increased in value during the time the ancestor had it. Therefore, if someone inherited $10,000 worth of stock from a person who had originally paid $1,000 for it, the heir would be liable for taxes on $9,000.

Strenuous objections to such a plan will come particularly from farmers who want to leave their land to their children and from small-business owners who want their offspring to take over the company.

Joining the big-money items on the possible revenue menu are abundant narrower pet proposals proffered by some members.

Reduced Deduction

Rep. Sander M. Levin (D-Mich.) wants to consider further reducing the tax deduction for business meals and expenses, which was cut from 100% to 80% last year.

Rep. Don J. Pease (D-Ohio) and Rep. Byron L. Dorgan (D-N.D.) are calling for giving the Internal Revenue Service more money for enforcement and tax collection. “If we spent $3.5 billion, we could generate $105 billion over five years,” Pease says.

Committee members say that out of the diverse selection, they probably will lash together a package that draws new tax money from a wide range of sources, hoping thereby to minimize the furor that each individually can produce.

Levin acknowledged that he is not looking forward to it. To him, it looks like a no-win proposition.

“How do we handle the tax issue so the President is not able to misshape what we’re doing?” he said. “. . . We’re very concerned that the public understands what motivates us is concern for the deficit.”