Major Tax Hike, Benefit Levy OKd in Budget Talks

House and Senate negotiators agreed Thursday to backdate to March 1 a major tax hike imposed on upper-income Americans and to scale back proposed tax increases on higher income Social Security recipients.

Members of a conference committee working to forge a compromise from House and Senate versions of President Clinton’s budget package decided to lock in income tax rate increases on individuals with taxable earnings above $115,000 a year and couples making $140,000 a year or more. They decided to make the tax hikes retroactive to March 1, splitting the difference between Jan. 1 in the House bill and July 1 in the Senate version.

The budget legislation is designed to reduce the deficit by $500 billion over five years, with about half the savings coming from tax increases and half from spending cuts.

Although negotiators reached agreement on a number of issues Thursday, they remain far apart on such major issues as a proposed increase in the gasoline tax and efforts to curtail Medicare spending.

“On revenues, we are about halfway there,” Rep. Dan Rostenkowski (D-Ill.) told the negotiators at an open meeting. “But there is not much progress on the spending side.”

Rostenkowski said later that many House members had concerns about the proposed gasoline tax because its impact would be focused on large, rural states and only certain industries. He called it “tough to sell.”

Congress is trying to resolve differences between the two bills in time to have them approved by Aug. 6, before a monthlong congressional recess. The task is especially difficult given the slim margins by which both the House and Senate approved their versions of the bill. Negotiators are trying to craft final language in a way that will preserve those narrow majorities.

Under compromise language agreed to Thursday, the current maximum tax rate of 31% would be increased to 35% for those above income thresholds of $115,000 for single people and $140,000 for joint returns. The measure also would add a 10% surtax on taxable income over $250,000, regardless of marital status, for an effective tax rate of 39.6%.

Negotiators also agreed to drop a Senate provision that would have imposed a new surtax on capital gains--the profit from the sale of assets--on taxpayers with incomes above the quarter-million-dollar level.

Clinton had recommended against the increase. The Senate had voted to raise the existing 28% maximum tax on capital gains to 30.8% for those with high incomes.

On other items, legislators agreed to:

* Limit new taxes on Social Security recipients to 85% of benefits of individuals with taxable incomes above $32,000 a year and couples with incomes of more than $40,000.

Current law taxes 50% of Social Security benefits for individuals earning more than $25,000 a year and $32,000 for couples. Clinton had proposed to tax 85% of the benefits of everybody above those levels.

* Try to split the difference between a reduction in Medicare spending of $58 billion over five years approved by the Senate and $50 billion over the same period adopted by the House.

* Subject all wages to the 1.45% tax for Medicare. Currently, the tax applies only to the first $135,000.

* Reduce the allowable tax deduction for job-related moving expenses. Negotiators, however, deleted the Senate’s $10,000 overall limit on the deduction allowed for any one move.