Smaller Business Tax Hike Favored by Rostenkowski : Budget: He sees lower levy as making it easier to pass deficit-cutting bill. He confirms House panel would scrap Clinton’s plan on investment credits.

Rep. Dan Rostenkowski, chairman of the House Ways and Means Committee, said Tuesday that he favors a smaller increase in the corporate income tax rate than President Clinton recommended, suggesting the change would help ease a $300-billion deficit-reduction bill through Congress.

Emerging from a four-hour closed-door caucus of Democrats on the tax-writing panel, the Chicago lawmaker also confirmed that the committee would scrap Clinton’s proposal for investment tax credits for large corporations and smaller firms and divert an estimated $30 billion to other tax breaks for business and for energy users.

Rostenkowski said the tax bill might fare better in the Senate as well as in the House if the top corporate tax rate was limited to 35% instead of the 36% sought by the President.

“If I had my druthers I’d love to see it come out at 35,” said the chairman, who usually has his druthers among the 24 Democrats on the panel.

“If we can do 35%--and hold on to it--it would certainly help (Senate Majority Leader George J.) Mitchell on the Senate side,” he said.

But Rostenkowski said there was no agreement yet on how to change the $70-billion broad-based tax on energy that has drawn criticism from farmers, energy producers, industrial users and airlines, among other groups. It represents about 20% of the total revenue to be raised by the bill.

However, congressional sources said a compromise appeared likely on the President’s proposed energy tax to shift the burden from producers to consumers of natural gas and electricity and to contractors in the oil and gasoline industry.

While the bill that emerges from Ways and Means is expected to be passed by the Democrat-controlled House with little difficulty, the outcome is less certain in the Senate, where Republicans can offer unlimited amendments and a few defecting Democrats could endanger the bill’s chances.

“It is very complicated and members are all over the lot,” Rostenkowski told reporters, indicating that Democrats were divided over whether producers or consumers should pay the tax and whether its regional impact would be fair.

Once agreement is achieved among Democrats, Rostenkowski said, he would reconvene the committee and seek approval for a revised measure that must be finished by the end of this week.

“I’m making a judgment call about what my Democrats want,” he said. “To an individual they want to be supportive of the President, but there are things that they want to change that would attract votes on the (House) floor.

“I’m pleased with the way things are going.”

Earlier, Clinton won an easy victory when the House Ways and Means Committee adopted intact his new $1.5-billion family preservation program to expand services for victims of child neglect or abuse.

Acting on a party-line vote, the panel endorsed the Clinton-backed provisions that would help states meet rapidly rising costs of family counseling and foster care. The changes are the first in this federal program since 1980.

In a related action, the committee also approved stronger standards to force so-called runaway fathers to support their children and provide health insurance for them.

Some liberal Democrats expressed concern that Clinton was making too many concessions on the giant tax bill even before it was considered in committee. Speaker Thomas S. Foley (D-Wash.), however, defended the chief executive’s decisions to go along with adjustments suggested by lawmakers.

“Every President I’ve known and served with has, you know, focused on the essential parts of his legislative program,” Foley said. “The details of how it’s implemented are always a matter for discussion and adjustment. I think that’s what’s going on here.”

The Ways and Means Committee--which is responsible for writing the tax law that will enact the revenue-producing side of the President’s economic plan--was expected to meet Clinton’s targets by raising $337 billion in revenue and approving $95 billion worth of tax breaks. In addition, the panel was expected to make reductions in spending for a total deficit-cutting package of almost $300 billion to carry out a large part of Clinton’s economic program.

Foley said he expected the full House would take up the tax bill this month and then devote most of June to passing a series of appropriations bills containing the rest of the economic package the President has urged the Democrat-controlled Congress to pass.

Despite sharp criticism of some of Clinton’s proposed tax increases, Democrats appeared to be united behind proposals to raise taxes sharply on high-income individuals earning at least $115,000 a year and couples making more than $140,000 in taxable income.

In addition, the bill would reduce the deductible portion of business meals and entertainment from 80% to 50% and deny deductions for business lobbying and for club dues. It would raise taxes for about one-fourth of Social Security recipients with incomes of more than $25,000 for an individual and $32,000 for a couple.

The President’s child welfare and foster care recommendations sailed through the committee with unified Democratic backing. Overall, they would require spending of $1.5 billion over the next five years and provide savings of $1.2 billion from new fees and savings in other programs.

It was one of Clinton’s proposed investments in “human capital” to help parents and children who require assistance from state child welfare systems.

The committee also approved an increase from 50% to 75% in the federal matching grants to states for the extended unemployment benefits program. The present 0.2% federal surtax on unemployment insurance taxes would be extended for two years, through 1998, to pay for the extra cost and build up a reserve in the fund for additional jobless payments.