Panel OKs Tax Relief for R&D;, Jobs Project

The House Ways and Means Committee voted tax relief Thursday for off-road users of diesel fuel and agreed to extend expiring tax credits for research and development and for employers who hire the poor.

The panel also voted to renew an oft-criticized tax exemption for mortgage revenue bonds that are aimed at helping lower-income Americans buy their first homes. The committee agreed to tighten the program slightly so as to deny the benefits to those with higher incomes.

The special tax provisions were added to a bill whose main purpose is to correct errors in the 1986 tax overhaul. Aides said Rep. Dan Rostenkowski (D-Ill.), the chairman, hopes to complete work on the bill next week.

Before the bill is finished, the panel will have to find ways to pay for the special tax reductions. Rostenkowski has proposed a package that would place most of the burden on defense contractors, owners of single-premium life insurance policies and corporations that hold sizable shares in other corporations.

Aides said it is likely that members of the committee will propose relief for other beneficiaries. Because of budget restrictions, any such tax cut that is adopted will have to be paid for by a tax increase on some other group.

The committee, meeting behind closed doors, spent much of Thursday’s session arguing about Rostenkowski’s proposal to extend the mortgage-bond tax exemption, which is due to expire Dec. 31. The Reagan Administration opposes any extension.

Bigger Families Get Break

In addition, the General Accounting Office, the investigative arm of Congress, contends that the bonds open the door to home ownership to very few people who could not afford to buy otherwise. Also, GAO said in a report last March that “home buyers, on average, receive only about 36 to 39 cents in benefits for every dollar in tax revenue forgone.”

The committee adopted an amendment by Rep. Brian J. Donnelly (D-Mass.) that slightly tightened eligibility requirements for the program but not quite as much as Rostenkowski proposed. The new formula is more generous to larger families.

Extending mortgage-bond exemption would cost about $165 million through 1991.

The panel also voted to:

- Extend through 1990 the credit for increased spending for research and development. Lawmakers view the credit as a big plus in the effort to make U.S. businesses more competitive abroad. To offset part of the cost, the business deduction now allowed for research expenses would be reduced by the amount of the credit. The two provisions would mean a revenue loss of $1.05 billion through 1991.

- Allow farmers, barge operators and other off-road business users of diesel fuel to avoid the federal tax of 15.1 cents a gallon, effective July 1. Such users long have been exempt from the tax but as of April 1 have been required to pay it and then file for a refund at year-end. They will qualify for interest-bearing refunds of any tax paid between April 1 and July 1.

- Permanently permit owners of mutual-fund shares to fully deduct certain investment expenses of the funds, thus granting them tax relief of about $1 billion through 1991. Without the change, many shareholders would be unable to write off those expenses because of the new restriction that allows deduction only of miscellaneous expenses that exceed 2% of adjusted gross income.

- Extend through 1990 the targeted-jobs tax credits, under which the government in effect pays up to $2,400 of the first-year wages of workers considered economically disadvantaged. The credit, due to expire Dec. 31, would cost about $315 million through 1991.