Officials from at least three Cabinet departments have objected to portions of the Treasury Department's tax-simplification proposal.
They have told Treasury that doing away with numerous business tax breaks, as the plan proposes, could harm the economy -- and some of their constituent groups.
* Commerce Secretary Malcolm Baldrige said last week that "investment incentives," such as accelerated depreciation deductions and the investment tax credit, should be retained. The Treasury proposal severely curtails them. Baldrige also has made his views known in a letter to Treasury, which is reviewing the plan to decide what changes to make before presenting it to Congress in early May.
* Deputy Energy Secretary Danny J. Boggs told a Senate hearing in Oklahoma City last month that his department "views with great concern some provisions of the current version of the Treasury tax proposal." A case can be made for keeping the existing tax benefits for oil exploration and drilling -- "and the Department of Energy will make that case," Boggs said. He said in an interview this week that his opinion has not changed since the testimony.
Energy spokesman Philip Keif said that newly confirmed secretary John S. Herrington had approved Boggs' testimony, and that it expressed the official view of the department. Energy also has sent written comments to Treasury.
* Interior Secretary Donald P. Hodel has not looked at how the tax plan would affect his new constituencies at the Interior Department, but fears that limiting benefits for oil and gas would reduce production, according to press secretary David Prosperi. Hodel, formerly secretary of energy, plans to make the objections of the oil industry known to the rest of the administration, using his post as chairman of the Cabinet Council on Natural Resources, Prosperi said.
Before he left Interior, former secretary William P. Clark wrote a letter to White House Chief of Staff Donald T. Regan dated Feb. 6 saying historical preservation of buildings could be harmed by elimination of the 25 percent tax credit for investment in rehabilitation of historic buildings, as the tax plan proposes.
A fourth current Cabinet member, U.S. Trade Representative William E. Brock, has written a letter to Treasury, but the department would not release any of the inter-departmental communications on the tax plan.
Brock said yesterday that any changes in the tax code should encourage saving to reduce American dependence on investment from overseas. In the past, he has also said any tax revision should be designed to make U.S. products more competitive overseas. Many companies have contended that the Treasury plan have the opposite effect.
Reagan, while he has endorsed several principles of simplification with enthusiasm, has also thrown in some caveats. The president has said he "would have to be convinced" of the need to increase the tax burden on business, something the Treasury plan as now written would do.
Although tax revenue from business would rise considerably under the Treasury plan, Reagan has said several times that the money would come only from companies that are now paying little or no taxes or from the underground economy.
His views and those of the Cabinet members place officials now attempting to write "Treasury II" in something of a bind: It will be hard to meet all their objections and still come up with a package that doesn't reduce federal revenue.
Treasury Secretary James A. Baker III said as much during a hearing on tax revision before the House Ways and Means Committee Feb. 27. He repeatedly reminded committee members pushing for their favorite loopholes that every deduction, credit and exclusion left in the code constrained how much individual rates could be reduced.
Reagan and Baker have publicly committed themselves to reducing the top personal rate from 50 percent to at least 35 percent, while "maintaining incentives for capital formation" and reducing the corporate rate.