Panel Agrees on Tax Bill’s Key Elements

House and Senate conferees agreed Saturday on the major elements of a compromise tax and urban-aid bill, eliminating extensions of two tax increases for the rich that President Bush had threatened to veto.

In 2 1/2 days of closed-door negotiations, the lawmakers also discarded a provision proposed by Bush to provide a $2,500 tax credit for first-time home buyers, designed to spur real estate purchases this year.

They also trimmed down the President’s proposal for establishing new “enterprise zones” to help create jobs in poor neighborhoods by providing tax incentives for businesses that expand employment there. Conferees agreed to create only 50 such zones, rather than 115 as in the Senate bill. It did not designate in which cities the zones would be situated.

And they completed work on a series of tax breaks designed to spur more energy production and conservation. Those breaks are to be included in the massive energy legislation now awaiting final action by Congress. The measure is embroiled in controversy, however, and its fate is in doubt.

The conference committee is expected to complete details of the compromise measure today, in time for the House and Senate to vote on the legislation Monday, before Congress adjourns for the year.

Congressional strategists said the lawmakers had decided to drop the tax credit for home buyers and to reduce the number of new “enterprise zones” that the bill would create so the measure would remain within budget guidelines.

Had the panel not cut Bush’s program back, the conferees would have had to make up for the expected loss in revenues by cutting proposed new benefits for individual retirement accounts sponsored by Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.).

The strategists said the panel felt that if cutbacks were to be made, the Administration should have to accept a portion of the burden.

Despite efforts to avert a Presidential veto, however, it still was not clear whether Bush would sign the legislation. Republicans, who had issued the original veto warning last week, said the White House would not say what Bush might find acceptable.

The measure still contains about two dozen provisions that Bush could, if he chose to, categorize as tax “increases.” They range from limiting the deduction for job-related moving expenses to requiring a tax on diesel fuel for pleasure boats.

If Bush does veto the tax bill, there most likely would be no time left for lawmakers to try to override him. Both houses are scheduled to adjourn on Monday or early Tuesday so members can return to their districts to campaign for the November election.

The provisions to which Bush objected would limit itemized deductions for individuals earning $105,250 a year or for couples making $157,900, and phase out the personal exemption for that same income bracket. Unless renewed, those provisions are to expire in 1996 and 1997 respectively.

Both provisions were enacted originally, with Bush’s approval, as part of the 1989 budget accord between Congress and the White House. They are the same two that got the President into trouble politically for breaking the no-new-taxes pledge he made during the 1988 presidential campaign. They were put into the Senate version of the tax bill last month but removed by the conference committee Saturday.

If Bush vetoes the legislation, he also will be rejecting some major elements of his economic recovery program that are included in the measure--including tax breaks for real estate investors and a cut in the so-called “minimum tax” paid by high-income taxpayers.

The compromise version of the bill contains about $27 billion worth of tax cuts for individuals and business and a similar amount of tax increases to help offset the cost. The Senate version had included some $35 billion worth, while the House bill cost $17 billion.

The compromise measure would sharply expand benefits for Americans who deposit money in individual retirement accounts. And it would repeal the excise tax enacted in 1990 on purchases of yachts and other luxury items.

And it would make permanent a series of tax breaks enacted in previous years that otherwise would have expired--including tax credits for job-creation, low-income housing, mortgage and industrial revenue bonds and research and development.

The tax provisions involving individual retirement accounts would:

--Allow individuals to take money from IRAs without suffering the current 10% early-withdrawal penalty if they use the money to finance a first-time home purchase, pay college tuition costs, underwrite medical expenses or cover living expenses while jobless.

--Set up special new IRAs that would permit taxpayers to withdraw their money early tax-free if the funds have been on deposit in the account for at least five years. Under current law, a depositor can’t withdraw IRA funds without penalty until age 59 1/2.

--Restore an earlier provision that would enable more taxpayers to fully deduct contributions of up to $2,000 yearly to individual retirement accounts. The 1986 Tax Reform Act limited those deductions to low- and middle-income brackets.

The deductibility would apply to individuals with adjusted gross incomes of less than $85,000 a year and couples earning less than $100,000. Current restrictions phase out such benefits for individuals earning more than $25,000 and couples making more than $40,000.

The provisions affecting energy would provide tax breaks for workers whose employers reimburse them for transportation or parking costs, for auto makers who develop more fuel-efficient vehicles and for independent oil producers.

The tax increases in both the House and Senate versions of the bill would primarily affect securities dealers, owners of commercial real estate and wealthy individuals and corporations that are required to file estimated tax payments each quarter.

Most negotiating in the 2 1/2-day conference session was done by Bentsen and Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, who closeted themselves in Rostenkowski’s office in the Capitol for a marathon round of talks.

Despite the committee’s decision to include Bush’s proposal for “enterprise zones,” the urban-aid portion of the package falls far short of the broad program that big-city mayors had demanded in the wake of the Los Angeles riots last May.

The enterprise zone proposal is separate from the urban aid package Congress approved after the Los Angeles riots. That legislation included money to expand summer jobs programs and to reimburse federal agencies for their spending on disaster relief.

A veto by Bush would mark the second time this year that he has rejected major tax legislation. He turned down a more sweeping tax measure in March, also because it would have raised taxes on the rich. That one included broader tax cuts for the middle class.