$9 Billion in Options Offered : Want to Pick a Tax? Try This Smorgasbord

Congress and President Reagan, committed by Friday’s deficit-cutting plan to raise $9 billion in new revenues this fiscal year, have a smorgasbord of possible tax increases to choose among--but a number of measures, including higher income tax rates, already have been ruled out.

The most likely selections involve telephone taxes, limits on home mortgage deductions for the wealthy and some tighter corporate taxes.

Intentionally Vague

Recognizing Reagan’s aversion to taxes, the budget negotiators were carefully vague in announcing Friday’s agreement. They specified only the total revenue goal, with details to come later in legislation to be prepared by Congress’ tax-writing committees.

When asked if Reagan was given a list of tax increases, House Speaker Jim Wright (D-Tex.) said: “No, and he didn’t ask for one.”

There will be no tampering with the historic tax reform law of 1986, which will lower the top income tax rate for most Americans to 28% next year. Both Reagan and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) insisted that there be no tinkering with tax rates.

“I don’t think it’s achievable in this climate to have (tax) rate increases,” Wright acknowledged at a White House ceremony at which the deficit-reduction package was unveiled.

The President, standing at Wright’s side, said: “What the Speaker says is correct.”

The negotiators also specifically ruled out a national sales tax or the variant known as a value-added tax. They promised that there would be no delay in the adjustment of tax brackets for inflation, which protects taxpayers from being forced into higher brackets by inflation-driven wage increases.

Instead, the House and Senate tax committees probably will select from the provisions of tax bills already passed this year by the full House and by the Senate Finance Committee.

No Time to Act

In the waning days of the year, there is neither the time nor the inclination to introduce new proposals.

During extensive deliberation earlier this year, the tax committees examined a long list of possible tax increases and discarded all but a handful as politically unacceptable.

Ruled off limits were any hikes in the federal taxes on wine, beer, liquor and cigarettes. An oil import fee or a boost in the gasoline tax drew no significant support. A national sales tax, although it could raise vast sums of money, was brushed aside as a political death wish.

An Administration plan to require all state and local government workers to pay Medicare’s 1.45% portion of the Social Security payroll tax was summarily rejected.

The original House measure called for $12 billion in tax increases, while the Senate Finance Committee version had $11.5 billion. These bills, overlapping in some provisions and conflicting in others, form the universe from which the $9 billion in new taxes will ultimately be fashioned.

Both bills would extend the 3% federal tax on telephone service, which is scheduled to expire at the end of this year.

The House bill would set a ceiling on the popular home mortgage interest deduction, which so far has been politically off-limits. The bill would limit the amount of mortgage debt on which interest is deductible to $1 million.

Interest deductions for another popular form of borrowing, the home equity loan, would be limited to loans up to $100,000. But the House bill would allow the deduction for loans received for any purpose. Under current law, if a loan exceeds the purchase price of a residence and improvements in it, the interest is deductible only if the loans are for medical or educational purposes.

Affluent Affected

Although the Senate bill contains no provisions affecting interest deductions, these House-passed measures seem likely to be part of the final compromise because they would affect only relatively affluent taxpayers.

More controversial--and less likely to be enacted--is a Senate provision that would increase the Social Security payroll tax for some 8 million high-wage workers.

At present, the 7.15% tax applies only on $43,800 in annual income. The Senate Finance Committee bill would eliminate the ceiling for Medicare’s 1.45% share of the tax. But the White House strongly opposes this provision, which does not appear in the House bill, and it may well be dropped.

More likely to survive are two other provisions in both the House and Senate bills that would increase revenues from estate taxes.

The estate tax, now a maximum of 55%, would be effectively frozen at that level; current law reduces it to 50% next year. Only inheritances above $3 million would be affected.

Both bills would also sharply curtail the opportunity to cut estate taxes through the sale of securities to corporate employee stock ownership plans.

Corporations Likely Key Targets

On the business side, the biggest revenue bite is likely to come from strengthening the corporate minimum tax. By expanding the definition of corporate income, the House bill would increase revenues by nearly $3 billion a year from corporations that now pay relatively low effective tax rates.

The Senate may accept this provision. And the House may accept a Senate Finance Committee plan to gain nearly $2 billion by requiring businesses to speed up payments of estimated taxes.

The Wall Street community has been alarmed by several provisions of the House bill aimed at discouraging corporate takeovers. But these measures appear to have little chance to survive because of determined opposition from Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.).

One provision of the House bill would limit interest deductions on borrowings to take control of another firm to $5 million a year. This would make big takeovers financed with borrowed funds much more costly and less attractive.

The bill also would impose a 50% excise tax on income from “greenmail”--payment by a corporation to buy its shares from someone who is threatening a takeover.

THE TAX MENU

Comparison of the major tax provisions of separate deficit-trimming bills already passed by the House and by the Senate Finance Committee. Some combination of these provisions is likely to form the core of the deficit-reduction legislation to be prepared according to the terms of Friday’s agreement between Administration and congressional negotiators, which calls for $9 billion in new revenue this fiscal year.

House Senate Revenues Extend 3% telephone tax, now Same provision $1.3 billion scheduled to expire Jan. 1 Limit home mortgage interest No provision $40 million deduction to mortgages of $1 million and limit interest deduc- tion on home equity loans to loans of $100,000 or less Keep estate tax at 55% (sched- Same provision $21 million uled to fall to 50% Jan. 1) No provision Remove the $43,800 $2.2 billion cap on annual salary subject to Medicare’s 1.45% share of the payroll tax Limit deductions for estate sale Same provision $1.3 billion of securities Strengthen corporate minimum No provision $2.8 billion tax Limit deductions for interest on No provision $330 million money borrowed to finance takeovers No provision Accelerate corporate $1.8 billion payments of estimat- ed taxes