The House Ways and Means Committee, finally breaking a three-day logjam over procedure, took its first votes on overhauling the tax code yesterday and agreed to an amendment that would increase the deficit unless taxes are raised in other parts of the tax code.
The committee decided not to tax workers' compensation, black lung benefits or workers' disability payments, although both President Reagan and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) had wanted to impose such taxes.
The panel also voted to repeal income averaging, which now allows taxpayers with large jumps in income from one year to another to avoid sharp increases in taxes. Reagan and Rostenkowski both favored repeal. Retaining income averaging would have cost billions of dollars in revenue, leaving the committee even further in the hole.
Although the votes were the first substantive moves the committee has made, they marked only a tiny step in the long process of tax overhaul. Staff aides said the fact that the first day's action leaves the committee with reduced federal revenue was not significant, and pointed out that all committee actions are tentative and subject to change.
Later in the evening, Rostenkowski narrowly fended off an effort to add a new tax break to the current code. He delayed until today a vote on an amendment that would make permanent an expiring provision of the tax code that lets taxpayers who do not itemize their deductions deduct their contributions to charitable organizations.
Charities, whose lobbyists thronged the halls of the Longworth Building where the panel is meeting in closed-door sessions, pushed hard to make the provision permanent and were seen as having a good chance of success. It would cost more than $11 billion over five years if no accompanying amendment were proposed to offset the loss.
After the initial round of votes, legislators from both parties, who earlier in the day gave Rostenkowski a victory and revised their operating rules as he requested, said they were happy to be taking action at last -- even if much work remained.
"I think everybody feels a lot better now that we are actually doing it," said Rep. Guy Vander Jagt (R-Mich.). "Things are starting to fall into place. We're back on track."
"It's going to be a slow process," said ranking committee Republican John Duncan (Tenn.). "I would think a real good month. There are 139 pages and we're on page six and we haven't even done all of those."
Meanwhile, President Reagan, speaking to workers at the Ivorydale Soap Manufacturing Plant in St. Bernard, Ohio, mentioned that the tax measure is working its way through the House and "it's up to them to send a bill to the Senate as quickly as possible" so Congress can complete action "this year, in 1985."
The president spoke at a Procter & Gamble Co. soap factory and noted the firm's support for his plan. He suggested that passage may be "a gift that . . . we'll have wrapped up by Christmastime."
Later, speaking to Cincinnati business leaders, Reagan rhetorically confronted those predicting the demise of his tax overhaul plan, offering them "a few other choice predictions I'd like them to consider.
"In 1899, Charles H. Duell, Commissioner of the U.S. Patent Office, said this: 'Everything that can be invented has been invented.' And he suggested we should do away with the office.
"And with the advent of sound tracks for motion pictures in the twenties, Harry Warner -- one of my old bosses -- of Warner Bros., said this: 'Who the hell wants to hear actors talk?'
"Well, here's one for a great baseball town like Cincinnati. In 1921, Tris Speaker of the Cleveland Indians said this: 'Babe Ruth made a big mistake when he gave up pitching.'
"My friends," Reagan continued, "today's nay-sayers will soon take their place beside Tris Speaker in the Great Mistakes Hall of Fame. Just as sure as Ruth could hit homers and Rose can break records, during this session of the Congress, America's Tax Plan will become law."
As he was speaking, the Ways and Means panel was putting off work on many of his controversial proposals. The committee agreed not to act yet on such issues as reducing personal tax rates, raising the standard deduction for those who do not itemize, raising the personal exemption for taxpayers and their dependents, repealing the "marriage penalty" deduction for families with two incomes, modifying the credit for child care for working parents and imposing taxes on unemployment compensation.
But members decided to retain the tax credit for elderly taxpayers as it is in the current tax code, rather than orienting it toward lower-income elderly persons as Reagan had proposed. And they agreed to partially tax college scholarships and fellowships, rather than exempt them from taxation, as present law does.
The amendment on workers' compensation, offered by Rep. Ronnie G. Flippo (D-Ala.) and adopted by voice vote, would cost $3.4 billion in federal revenue over five years. The income-averaging amendment would have cost an additional $8.6 billion over the same period if it had been accepted.
Ways and Means members will fight this revenue battle every day as they attempt to wipe out and curtail enough deductions and credits to make it possible to reduce tax rates on individuals and corporations significantly. While the committee has agreed that single amendments do not have to be "revenue-neutral," the package they ultimately produce must bring in the same amount of money as present law, so that it is not a tax increase or decrease.
That rule was not changed when the committee went back over its operating procedures yesterday, after altering them once on Wednesday. But another key decision was reversed when members yesterday decided to use the Rostenkowski tax proposals as the base from which they will write legislation. Only a day earlier, they had voted to use the current tax code as the base.
The effect of yesterday's change is that the Rostenkowski proposals -- they do not replace every element of the Reagan plan -- will stand unless they are specifically amended by the committee. In an unusual turnabout, committee Republicans yesterday proposed using the Reagan plan as a base instead, but were warned against such an action by Treasury Secretary James A. Baker III, according to several sources present at the closed-door meeting.
Baker was said to have worried that a partisan proposal of that kind would slow the process of overhauling the tax code. The Republicans offered it anyway, and lost.