Members of the Senate Finance Committee yesterday praised the idea of a minimum tax to make all well-off individuals and corporations pay taxes but criticized the version in the House-passed tax bill.
Sen. Russell B. Long (D-La.), for example, worried that a minimum tax could hurt failing businesses. "You'd think we could draft it so that someone who was broke -- flat broke -- wouldn't have to pay tax," Long said angrily. "We ought to zero in on the ones who make money, rather than the ones who do not."
The hearing is the first of four scheduled for this week, as committee Chairman Bob Packwood (R-Ore.) works on a draft tax measure that he hopes will be the starting point when the committee begins writing its tax bill, probably in March. Committee staff aides met yesterday with senators' tax aides to discuss options that might be in that draft, but officials said they are far from accepting specific proposals.
Some of the items under consideration to raise revenue to pay for restoration of tax benefits from the House bill include limitations on deductions for interest paid by consumers and by businesss, and a limitation on the deductibility of state sales taxes. Committee aides also said yesterday that a meeting between the chairmen and ranking members of the House and Senate tax-writing committees to discuss the effective date of the tax legislation could come as early as this week.
The minimum tax as approved by the House is essentially a shadow tax system that kicks in if the taxpayer's deductions would reduce his tax liability below what they would be under the alternative system. Like the current minimum tax for individuals, the House legislation would restrict the extent to which certain deductions -- or preferences, in tax lingo -- could be taken. The taxpayer then would have to pay a flat 25 percent rate on that larger income as recalculated.
Sen. Daniel Patrick Moynihan (D-N.Y.) criticized a provision in the House bill that would limit the deduction for gifts of property to charities for purposes of the minimum tax.
Universities and museums say the provision will deprive them of the kind of gifts they need most: the big-ticket donations of stocks, buildings or works of art. Proponents of the change contend that most of those items are overvalued when they are donated in order to provide the giver with a big tax deduction, and that it would apply only when a wealthy taxpayer's liability is far below average.
Tax accountants and lawyers appearing before the panel said the House minimum tax would not necessarily keep the super-wealthy from avoiding taxes, but it would sweep thousands of other less-well-off Americans into the net.
"I perceive this as an approach to get at a few . . . at the high end of the scale and in the process I suggest you'd have significant overkill for middle-income taxpayers," said Byrle M. Abbin, managing director of the federal tax services office of the accounting firm of Arthur Andersen & Co.
The accountants also said the House minimum tax restricted legitimate deductions, such as investment losses incurred by partnerships, that it could encourage mergers by companies seeking partners with tax liabilities so they could avoid paying the minimum tax, and that it penalizes certain kinds of companies such as the newer start-up firms but would have little effect on more mature industries.
Because of the transition and other provisions in the House legislation, it would be years before the large corporations that now pay little or no tax begin paying significant amounts, the accountants said.