Tax Bill Passes After 11th-Hour Compromise : Provides $4.1 Billion in Breaks; Shifts Burden to Defense Firms, Others

Congress struck an eleventh-hour compromise Friday and passed a tax bill that would grant $4.1 billion in breaks for some taxpayers over the next three years and collect the same amount of revenue by reducing tax preferences for defense contractors and others.

The measure, resurrected after it appeared ready for burial in the last-week rush to adjourn, would provide a new benefit that would exempt interest payments on U.S. Savings Bonds from federal taxes if the bonds are cashed to pay college costs.

Other provisions would give farmers a permanent exemption from diesel fuel excise taxes and reduce taxes on livestock producers by $459 million over the next three years through changes in accounting rules.

The bill, which President Reagan is expected to sign, would also continue a number of popular tax benefits, such as tax relief for recipients of employer-paid tuition and a 20% deduction for business spending on research or development.

‘Bill of Rights’

A “taxpayers’ bill of rights” that places restrictions on the Internal Revenue Service in its enforcement of tax laws against individuals was also in the package that received a belated blessing from Senate and House negotiators.

The bill whizzed through the House on a 358-1 vote and cleared the Senate by a voice vote as one of the last pieces of legislation approved by the 100th Congress.

“This legislation is long overdue,” said Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee. “It’s a bipartisan, responsible package.” The House agreed, with only maverick Rep. Henry B. Gonzalez (D-Tex.) voting against the measure.

The measure included a provision sponsored by Sen. Edward M. Kennedy (D-Mass.)--and advocated in a slightly different form by Vice President George Bush--that would make interest on U.S. Savings Bonds tax-free if they are used to pay college tuition.

‘Landmark Provision’

“This is a landmark provision,” Kennedy said. “It marks the first time that families have been given an incentive to save for college costs.”

In a key Senate-House showdown, the House prevailed by sharply curtailing the use of an accounting technique widely used by defense contractors to defer taxes. Builders of single-family homes, who also use the technique, would be exempted, and a larger tax break would be given to builders of multifamily apartments.

Limiting the use of the “completed contract method” of accounting would raise $1.33 billion of the $4.1 billion in revenues involved in the legislation.

Another change would revise estimated tax payments by corporations to raise an additional $869 million over the next three years.

Congress decided for the first time to put a 45-cent-a-pound tax on pipe tobacco, although that would add only $5.35 million a year to the Treasury.

Technical Corrections

While the bill was introduced only to make technical corrections in the monumental Tax Reform Act of 1986, it soon began to grow as it attracted other provisions in both the House and Senate.

When the legislation first won House approval last August, it called for a three-year total of $7.5-billion worth of tax breaks and offsetting tax increases. The Senate, however, adopted a trimmed-down $3-billion measure.

At first, the House balked at reducing the size of its package and the Senate negotiators refused to accept the proposal to curtail the ability of defense contractors to delay the payment of federal taxes for the life of a government contract.

The deadlock persisted and Sen. Max Baucus (D-Mont.), Senate manager of the bill in the absence of campaigning Democratic vice presidential nominee Lloyd Bentsen of Texas, said Thursday that it would take a miracle to revive it.

Rostenkowski met Friday with Senate Republican leader Bob Dole of Kansas, however, and the logjam was broken with only hours remaining for action.

As a result, the complicated tax measure was brought to the House floor without any written report and was passed after less than an hour of debate as members put their faith in the negotiators. Similarly, in the Senate, the legislation breezed through with no difficulty.