WASHINGTON — Senate tax conferees, starting serious bargaining over a compromise tax overhaul package, Tuesday said that they would accept House-passed measures that would raise nearly $30 billion in taxes over the next five years, largely from businesses.
Big banks would be among the principal targets of the additional taxes in the proposal, which would also curb a number of tax deductions for manufacturers, utilities and timber firms. When added to the Senate-passed version of tax legislation, the additional taxes would prevent the bill from increasing the federal deficit and provide about $9 billion in added tax relief for individuals.
To Fight Further Hikes
The Senate negotiators, in endorsing the plan drafted by Finance Committee Chairman Bob Packwood (R-Ore.), stressed that they would resist further efforts by the House to raise corporate taxes to provide money for more substantial tax benefits for individuals.
"I choked and gulped and gasped and gagged and swallowed it," Sen. John C. Danforth (R-Mo.) said in describing how he grudgingly had agreed to go along with the package. "And I was left blue in the face and rolling on the floor."
But House negotiators indicated that they would return today with a counterproposal that would call for doubling the nearly $30 billion in additional taxes--again mostly by eliminating business tax preferences--to provide still more tax relief for individuals.
Hundreds of Differences
Before negotiators can reach agreement on a final tax overhaul plan, which they hope to accomplish by Aug. 15, they must resolve hundreds of differences between the Senate and House bills.
House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), describing the Senate proposal as a "darn-near acceptable offer," said that it was the "real first indication that the conferees are very serious about getting a bill."
"It's the beginning of the beginning," said Rep. Richard A. Gephardt (D-Mo.). "We've got a long way to go."
Negotiators are expected eventually to use additional revenues to scale back some Senate-passed curbs on various tax deductions, including contributions to individual retirement accounts. IRAs are not part of the new Senate proposal, however.
The Senate bargainers proposed allowing certain employee business expenses to remain deductible. The Senate-passed bill would wipe out the deduction for agent fees, for example, but the new offer would permit deductions for fees that exceed 2% of adjusted gross income--a plan advocated by the entertainment industry.
Curbs on Banks
Under the proposal, large banks no longer would be able to use bad debt reserves to reduce their taxable income, a measure that is expected to cost them $3.9 billion over five years. Also, banks no longer would be allowed to take a tax deduction for interest payments on money borrowed to buy tax-exempt bonds for their portfolios.
Business write-offs for investment in new plant and equipment also would be trimmed slightly from the Senate-passed formula, at an estimated gain to the Treasury of $6.9 billion. Corporations would not be eligible for a lower tax rate on profits from capital gains than other forms of income, a preference worth about $3.9 billion.
For individuals, Senate negotiators agreed to eliminate income averaging for all taxpayers, including farmers, whom the Senate had exempted.
Issue of Corporate Taxes
The wide gap between the House and the Senate on how much to increase corporate tax revenues is at the heart of the negotiations. The House would boost business taxes by an estimated $179 billion over a six-year period, while the Senate would raise them by $93 billion. During the same period, the House bill would cut taxes on individuals by $141 billion, compared with the Senate bill's $113 billion.
The tax conferees, in closed meetings, have tentatively agreed to use the Senate's low tax rates as a starting point. They have adopted the goal of slashing the top individual tax rate from the current 50% to a nominal 27% and the maximum corporate rate from 46% to 33%.
But, with Senate negotiators vowing not to eliminate any more corporate tax breaks and their House counterparts determined to protect some popular tax breaks for individuals, the pressure to slightly boost the top rates in the bill are likely to prove difficult to resist.
The negotiators want also to ensure that the tax changes will not drain revenue from the government. Their deliberations became snarled when a new inflation estimate last week indicated that the Senate-passed bill would fall $21 billion short of that goal over six years.
That required Senate bargainers to ante up at least that much in additional tax revenues just to get the tax trading started. Their new $30-billion proposal would cut business tax preferences by about $27 billion while reducing a handful of specialized tax deductions for individuals by nearly $3 billion.