Business support for overhauling the tax code, fragile to begin with, is slipping further as lobbyists examine the options suggested Thursday by House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.).
At several meetings along K Street yesterday, lobbying coalitions previously inclined toward the idea of tax revision worried that the proposed alternatives to elements of President Reagan's tax plan were not only less favorable to their interests, but were worse than the current tax code.
The Rostenkowski options, which the chairman says are just a starting point for committee drafting and are likely to be changed, would be less generous in such areas as depreciation write-offs for investment and the effective tax rate on capital gains -- profits from the sale of an asset -- than from the Reagan plan.
The staff proposals also would reduce the top corporate tax rate from the current 46 percent to 35 percent, rather than the 33 percent suggested by the president. Lower tax rates were one of the primary factors inducing some business groups -- a minority -- to support tax revision along the lines of the Reagan proposal.
At a gloomy session of the Tax Reform Action Coalition at the IBM offices at 18th and K streets yesterday morning, about 25 business representatives discussed how much more "wiggle room" they could tolerate on the corporate rate before giving up on tax overhaul.
"We think it's imperative that there are no further increases in the corporate rate or there is a serious danger we will end up with unanimous corporate opposition to tax reform," said Nick Calio, vice president of the National Association of Wholesaler-Distributors.
Several members of TRAC, the leading business group favoring the Reagan plan, said they would decide next week whether they would remain in the coalition.
"I think TRAC is showing cracks," said John Motley, director of federal legislation for the National Federation of Independent Businesses. "It's going to be difficult to hold together, and what you may see is that the groups that are small-business oriented will move off in their own orbit and do things on their own."
Ordinarily, business opposition or support for a particular piece of legislation might not have a decisive influence on the bill's fate. But Rostenkowski and others use as a central argument for overhauling the tax code the fact that at least some companies think they would do better under a tax system with lower rates and fewer deductions. The pro-revision business lobby has taken on an importance greater than its size, if only because so many other elements of the business community are opposed to tax overhaul.
Business lobbyists said the Rostenkowski proposals, which were developed by the committee staff, include some elements they like.
For example, the Reagan plan's proposed "recapture" tax on firms that have deferred large amounts of taxes through write-offs in recent years was abandoned.
Lobbyists also praised Rostenkowski's decision to retain Reagan's proposed deduction for 10 percent of corporate dividends, although it would be phased in over 10 years, and to cut tax rates as of Jan. 1, 1986, rather than in July, assuming the bill could be passed in time.
"There is a recognition of the pressure Rostenkowski was under" to give middle-income taxpayers a bigger tax break while collecting the same total amount of tax revenue, one TRAC official said.
Still, some analysts believe the Rostenkowski compromises have encountered the worst of all worlds: They lost some support from groups previously inclined toward tax overhaul, while other lobbies that long opposed much of the plan remain unconverted.
Charles Walker, chairman of the American Council on Capital Formation, for example, said yesterday that members of his group "will be pretty willing to wade in against the staff proposals , this is such a blow to capital formation."
Nor have many groups that gained something from the committee alternatives been co-opted into the pro-tax overhaul camp. Life insurance companies, for example, gained from the decision not to tax the increase in value of life insurance policies. But because other elements they consider objectionable remain on the table, the industry will continue its postcard-and-advertising campaign against tax overhaul, according to Richard V. Minck, vice president of the American Council of Life Insurance.
Similarly, spokesmen for companies that do business in Puerto Rico say they are pleased the Rostenkowski proposals would not repeal the tax credit that enables them to pay very little tax on their profits from operations there -- but say they are "definitely" happier with the current tax code.
Other committee options have created new enemies of tax overhaul. High-tech companies, for example, are gearing up against proposed restrictions on the tax credit for research, which the Reagan plan retained in full.
And defense contractors probably will lobby against proposed new restrictions on the accounting method that at present lets them defer taxes for periods of years.