The Senate yesterday handed the banking lobby a major victory and voted to postpone withholding on interest and dividend income to July, 1987, if not permanently.
The vote--91 to 5--suggested that the Senate would easily override a presidential veto. Supporters of repeal are believed to have veto-proof strength in the House, but they have not yet been able to force a vote there.
"This (vote) sends the strongest possible signal to the House of Representatives that they have got to act, and act quickly, and an even stronger signal to the White House," Sen. Robert Kasten (R-Wis.), said.
The freshman senator led the anti-withholding drive, forcing Sen. Robert Dole (R-Kan.), chairman of the Finance Committee, to capitulate on the issue earlier this week. "This is clearly my most important accomplishment as a senator. I'm proud," Kasten said.
The leading House advocate of repeal, Rep. Norman E. D'Amours (D-N.H.), said after the vote: "Now that the Senate has taken reasonable action on this issue, I feel certain that the House will act." An aide said he has garnered nearly two-thirds of the 218 signatures on a discharge petition designed to force a House vote on repeal over the objections of the leadership.
The Kasten-Dole "compromise," which was backed by all area senators, would postpone the starting day for withholding from this July 1 to July 1, 1987. Then, withholding would only start if the General Accounting Office found that more than 5 percent of taxpayers failed to report interest and dividend income, and both the House and Senate affirmatively voted to support the GAO findings.
To make up some of the lost revenues, the Kasten-Dole agreement calls for new penalties of up to $1,000 for those who fail to report interest and dividend income and stepped-up IRS auditing to force increased compliance. Using optimistic revenue estimating techniques, the Treasury Department said the Kasten-Dole amendment would result in $8.2 billion in new revenues over six years. Withholding would produce an estimated $13.5 billion.
Debate on the issue yesterday was perfunctory at best as all participants knew that approval of the legislation was a foregone conclusion. On Wednesday, however, one of the few holdouts in favor of withholding, Sen. John Danforth (R-Mo.), took the floor to castigate colleagues for giving in to one of the most intense lobbying campaigns in recent memory:
"What we are seeing in the Senate of the United States and what we will see in the House is (that) when a letter writing campaign is ginned up, when a newspaper ad campaign is ginned up, members of the Congress of the United States crumble like cookies."
President Reagan has vowed to veto legislation repealing withholding; however, outright repeal was rejected by the Senate. Kasten has suggested that the legislation approved yesterday, although tantamount to repeal, would give the president some "wiggle room," and a spokesman for Reagan said the veto commitment does not necessarily apply to the Kasten-Dole amendment.
In the House, Democrats on the Ways and Means Committee privately voiced strong opposition to the Dole-Kasten deal in a closed caucus. They said that if they are forced to take the issue to the floor, they are likely to propose full repeal accompanied by new taxes targeted specifically towards banks.