$21.4-Billion Tax Break Bill Clears Senate Committee : Congress: The measure would aid business and those buying first homes. It would help cities, expand IRAs.

The Senate Finance Committee on Wednesday approved an array of tax breaks for corporations, real estate developers, first-time home buyers and upper-income savers aimed at stimulating the lagging economy at a combined cost of $21.4 billion over the next five years.

Among the bipartisan bill’s provisions are an urban aid package for riot-damaged Los Angeles and other troubled cities and the offer of deductible individual retirement accounts for all taxpayers.

Acting on the only major tax bill with a chance of passage this year, the panel voted to provide $2.5 billion in tax relief for business firms investing in 25 enterprise zones. The concept, championed by the Bush Administration, is designed to bring new economic life to blighted inner cities and dying rural areas.

Perhaps the most appealing provisions for most Americans, however, are the vast expansion of individual retirement accounts and the tax breaks for home buyers.

Under the committee bill, all taxpayers, regardless of income, would be allowed to deduct IRA contributions up to $2,000 a year, starting in 1994. Current law phases out the tax-deductible provision for individuals with incomes of more than $25,000 and married couples with incomes of more than $40,000 if the taxpayer or spouse participates in a company pension plan.

Another committee-approved change would permit penalty-free withdrawals from IRAs, starting next year, if the funds were used for a first-time home purchase, educational expenses or medical bills for a taxpayer, spouse, child or grandchild.

The bill also would establish a so-called super-IRA starting in 1994 that would permit tax-free withdrawals if savings were held for more than five years. Contributions to the super-IRA would not be tax deductible, however.

First-time home buyers would receive a tax credit up to $2,500 if they purchase a principal residence before the end of this year. Individuals who did not have an interest in a home for the preceding three years would be eligible for the credit, which would be spread over two tax years. If the home is sold within three years, however, the credit would be recaptured, unless a death or divorce forced the sale.

Approval of the 342-page bill came in a voice vote without audible dissent, indicating that it would have clear sailing when it reaches the Senate floor, perhaps as early as next week.

“It’s truly a bipartisan bill,” said Sen. Lloyd Bentsen (D-Tex.), chairman of the finance panel. “I’m very optimistic it will pass the Senate without major change . . . so we can get this economy moving again.”

Originally conceived as a rapid federal response to the riots in Los Angeles last spring, the bill was reshaped by election-year pressures, and urban aid was overshadowed in the Senate committee’s version by multibillion-dollar tax relief for business and middle-income Americans.

Among its other features, the measure would repeal the 2-year-old luxury tax on yachts, airplanes, jewelry and furs while modifying the 10% tax on cars priced at $30,000 or more. Half a dozen popular tax breaks, including a credit for low-income housing, also were added to the legislation in committee.

The bill would offset the tax cuts by raising taxes on wealthier Americans and business firms and by adding a new levy on securities dealers, yielding a total of $434 million after five years. For example, upper-income tax increases would be accomplished by permanently extending laws phasing out personal exemptions and limiting itemized deductions. The measure would also limit tax breaks to buyers of failed thrifts and expand provisions requiring larger tax installments from corporate and individual taxpayers who file quarterly.

The House passed its version of the bill last month, allocating $5 billion for cities and another $14.5 billion in tax reductions. Once the Senate has approved its tax legislation, a Senate-House conference will reconcile differences and report a compromise measure for final congressional action.

President Bush, who endorsed the House bill and was said to favor the Senate committee’s version as well, was expected to sign the final legislation even though it probably will not include his favorite proposal: reducing the capital gains tax on profits from the sale of stock or other assets.

The White House was able to persuade the Senate and House tax-writing committees to support other Bush-backed tax provisions, however, such as tax credits for first-time home buyers and changes to benefit the real estate industry.

Here are other highlights of the Senate committee bill:

* Enterprise zones. Employers in 25 designated urban or rural areas would be eligible for a tax credit equivalent to 40% of wages or training expenses. Zone employers also would be entitled to rapid depreciation on buildings or machinery and could write off up to $75,000 of their investment in zone firms.

* Welfare. The bill would authorize $400 million over the next five years for programs to prevent or treat drug or alcohol abuse for pregnant women and parents with children on welfare rolls. Seeking to encourage welfare recipients to work, the bill also would allow families receiving assistance to retain $8,000 in a savings account to pay for college, a car or a home.

* Depreciation. A special 15% tax credit for corporations on equipment put into service from Aug. 1, 1992, to last July 1 at a five-year cost of $1.7 billion.

* Real estate. Rules that forbid real estate developers to deduct losses on rental units would be revised to allow such deductions for those who spend more than half their time in the real estate field. Other tax laws would be modified to encourage pension fund investments in real estate. The estimated cost is $2 billion.

* Taxpayers’ rights. A new post of taxpayer advocate would be set up to resolve taxpayers’ problems with the Internal Revenue Service and hear complaints against IRS officials. The advocate would report directly to the IRS commissioner.

* Social Services. The bill also would offer drug treatment programs for families on welfare and create a miniature replica of the Depression-era Works Progress Administration to provide government jobs for the long-term unemployed and welfare recipients.

The WPA was created in 1935 by President Franklin D. Roosevelt to provide useful public work for needy unemployed persons. In its eight years of operation it employed about 8.5 million individuals at a cost of nearly $11 billion. The jobs ranged from construction to art projects to the writing of guidebooks.

An IRA Deduction for Any Worker

Here are some of the provisions in the Senate panel’s bill:

* The IRA: Any worker would be allowed to set aside up to $2,000 a year in a tax-deferred individual retirement account and deduct the contribution from taxable income. The deduction would be available to all workers regardless of income, including those covered by company pensions, A new alternative would allow a worker to forgo the immediate deduction, pay tax on the $2,000 deposit and earn tax-free interest on the account indefinitely.

* Luxury tax: Luxury taxes on expensive yachts, furs, jewels and planes would be repealed. The 10% tax on luxury cars would be retained.

* Tax breaks: A dozen special tax breaks that expired June 30 would be renewed. These include a tax exclusion for up to $5,250 of employer-provided education assistance per year, a credit for investors in low-income rental housing and mortgage assistance for moderate- and low-income home buyers.

* Education exemption: Savings bonds redeemed to pay expenses of higher education would be exempt from tax regardless of the owner’s income. Present law allows a full exemption for couples with income of less than $60,000.

* Depreciation: To stimulate the economy, businesses would be allowed additional accelerated depreciation for equipment bought this year; the alternative minimum tax on corporations would be eased; real estate professionals would be permitted to use some losses from rental activities to shield wages and other income from taxation.

Source: Times wire services