Senate Near Passing $9-Billion Tax Hike

The Senate late Thursday appeared headed toward approval of $9 billion in higher taxes, its first step in implementing a $30-billion deficit reduction agreement reached last month after agonizing negotiations between President Reagan and congressional leaders.

Approval appeared certain after the Senate turned down, on a vote of 71 to 25, an alternative that claimed even greater deficit reduction through freezing most federal programs at last year’s spending levels.

Deficit to Remain Large

The higher taxes, combined with spending cuts embodied in legislation that is expected to reach the Senate floor today, would pare $30 billion from this year’s projected $180-billion deficit. However, the measures still could leave a budget deficit larger than the $148 billion recorded for the fiscal year that ended Sept. 30.

Thus, many in and out of Congress have complained that the package does not go far enough, particularly in the wake of the Oct. 19 stock market collapse, which was blamed in part on the deficit.

Sen. Ernest F. Hollings (D-S. C.) spoke of the plan scornfully as an effort by lawmakers “to give themselves a good government award for cutting the deficit.” He contended that many of the claimed savings amount to “smoke and mirrors,” and he predicted that the plan ultimately will reduce this year’s deficit by no more than $20 billion.

But Senate leaders argued that the package is the best compromise that could be reached by negotiators trying to reconcile the conflicting philosophies of a Republican Administration and a Democratic Congress.

Senate Majority Leader Robert C. Byrd (D-W. Va.) described the package, which its backers claim will reduce the deficit by $76 billion over two years, as “the practical, the do-able, the attainable.”

“The markets at home and around the world may not be overjoyed by what we have done,” Senate Budget Committee Chairman Lawton Chiles (D-Fla.) conceded. “But consider the reaction had we failed to achieve an agreement. And consider the prospects of what might happen if, in these last days of the (congressional) session, we fail to approve the package we promised.”

Gramm-Rudman Cuts

One immediate consequence of failure to pass the legislation would be that $23 billion in indiscriminate spending cuts already in effect temporarily under the Gramm-Rudman deficit reduction law would become permanent. The cuts would be divided equally between most domestic programs and defense spending and could sharply curtail the budgets of some government agencies.

In part to protect military spending from the Gramm-Rudman cuts, President Reagan reluctantly agreed to support $9 billion in new levies, which was a major retreat from his pledge not to raise taxes.

Except for its three-year extension of the expiring 3% telephone excise tax, the bill would force businesses and wealthy individuals to shoulder most of the burden in additional taxes. Included are:

--Extending estate and gift taxes at the current rates for the next two years, rather than allowing them to fall, as scheduled, next year.

--Ending the current child care tax credit available to those who send children to overnight camp.

--Requiring large family farms, real estate firms and large manufacturers to use what are usually less advantageous accounting methods when they figure their taxes.

Social Security Taxes

--Requiring workers and their employers to pay Social Security taxes on income the workers receive as tips. Others who would be required to pay Social Security taxes include non-active-duty military reservists, on their military pay, and 18- to 21-year-olds who work for their parents’ businesses.

Also included in the measure is almost $6 billion in reductions in entitlement programs. Almost a third of those cuts would come from Medicare, where the government would reduce the amounts it pays doctors and hospitals.

But even as the Senate debated the measure, the White House raised threats of a veto.