WASHINGTON — California Sens. Alan Cranston and Pete Wilson pledged Wednesday to fight against provisions in a draft Senate tax revision bill that would dramatically cut federal deductions for state and local taxes.
Democrat Cranston said at a news conference that he and Republican Wilson would combine forces with New York's senators, Republican Alfonse M. D'Amato and Democrat Daniel Patrick Moynihan, to oppose these provisions, which are contained in a draft proposal drawn up by Senate Finance Committee Chairman Bob Packwood (R-Ore.).
"This is double taxation," Cranston said, referring to the provision in Packwood's plan that would repeal the federal deduction for state and local sales taxes and personal property taxes and limit the deduction for state income taxes for families earning $75,000 or more.
Influence in Congress
But Cranston acknowledged that the large states that rely on income taxes have less influence in the Senate than they do in the House, which last year defeated all proposed changes in the deduction for state and local taxes. "Whether we can defeat it in the Senate, I'm not sure," he said.
Packwood's draft bill is to be disclosed today. The Senate Finance Committee then will consider amendments to the measure, beginning next Wednesday.
Cranston said he is also rounding up support in the Senate to insist that none of the bill's tax changes take effect before Jan. 1, 1987. He said widespread fears that Congress will enact tax reform retroactively are hurting efforts by local communities to sell bonds.
Although the House-passed bill's provisions would be retroactive, Packwood has pledged that most of the effective dates in his proposal will take effect on Jan. 1, 1987.
Good Starting Point
Most members of the Senate Finance Committee have been briefed on Packwood's proposal, but they were slow to react because the chairman refused to give them copies of the plan to study. However, many congratulated Packwood for coming up with a good starting point for the committee.
"I'm glad the seventh version of tax reform is going to be out," said Sen. Bill Bradley (D-N.J.), a longtime advocate of tax reform. "The process is moving forward and that's terribly important."
Bradley and other committee members who were briefed by Packwood on the panel's draft bill said it would:
--Repeal the business deduction for excise tax payments and tariffs, raise the excise tax on wine and index excise taxes to rise with inflation. The elimination of excise tax deductions for corporations would produce an estimated $62 billion in revenues.
Repeal of Tax Credit
--Repeal the 10% investment tax credit but refund the amount of investment tax credits that companies have outstanding at the rate of 70 cents for every $1 still on the books.
--Reduce the personal exemption for taxpayers making $100,000 or more, eliminating it for those with incomes above $200,000.
--Allow a continued tax exemption for interest paid on first and second home mortgages but limit to $2,000 the deduction for other interest expenses.
--Cut the maximum annual contribution to tax-deferred individual retirement accounts and 401(k) retirement savings plans to $7,000. Current law limits IRA contributions to $2,000 and 401(k) contributions to $30,000. Interest on loans for IRA contributions would no longer be deductible.
Deductions for Meals
--Allow businesses to deduct only 80% of their business meals and entertainment expenses.
--Subject individuals and corporations to a minimum tax rate of 20%.
--Convert accelerated 19-year write-offs for real estate to 30-year straight write-offs. Depreciation would be indexed for inflation in excess of 3% annually.
--Repeal the two-earner deduction designed to help married couples and income averaging.