$12-Billion Tax Hike Drafted by Panels

As the Congressional Budget Office released estimates showing a widening federal budget deficit, House and Senate panels Thursday put finishing touches on legislation to raise taxes by about $12 billion this year.

But at the White House, President Reagan declared the bills “an exercise in fiscal irresponsibility” and renewed his threat to veto higher taxes.

“It’s a breach of faith with the American people; it is unwise; it is uncalled for; it will not be tolerated by me or the American people,” Reagan said in a written statement.

If tax legislation is approved by Congress as expected, the showdown will come when Reagan is forced to choose between backing down from his veto threat and accepting $23 billion in spending cuts that will include sharp reductions in military spending.

Cuts Occur Automatically

Those cuts would occur automatically under the Gramm-Rudman budget-balancing law if Congress and the President cannot agree on other means of reaching the law’s deficit goals.

The House Ways and Means Committee passed its legislation on a straight party-line vote of 23 to 13.

Among the proposals in its legislation are the first-ever limit on the amount that taxpayers may deduct on home mortgages and home equity loans. The bill would allow deductions only for the first $1 million in debt on mortgages and $100,000 in debt incurred against home equity.

Senate Finance Committee Democrats voted to impose Medicare’s share of the Social Security payroll tax on all annual income. At present, the tax--7.15% of earnings--applies only to $43,000 of income annually. Under the Democrats’ proposal, Medicare’s share of the tax--1.45%--would continue to be imposed on additional income.

The entire Finance Committee has not yet considered the measure.

Democrats Act Alone

Republicans in both houses have sided with the President, leaving Democrats to put together the tax proposals alone. Both pieces of legislation consist of dozens of relatively minor tax increases.

The action came as the budget office reported that this year’s projected deficit under current spending and tax policies would be $179.3 billion, which is up by $1 billion from the estimate prepared in January. The difference, it said, is additional government spending.

In the absence of other measures to reduce the deficit, the Gramm-Rudman law would require $23-billion worth of virtually across-the-board spending cuts for the fiscal year that began on Oct. 1. The CBO projected that those measures would reduce defense spending by 10.4% and many domestic programs by 8.7%.