Democrats on the House Ways and Means Committee yesterday backed off their earlier endorsement of Reagan-style across-the-board tax cuts and decided instead to propose "targeted" reductions that would give more relief to middle-income taxpayers.
Their change of heart, which came in a closed caucus on the eve of the committee's mark-up of the tax-cut bill, destroyed any remaining hope of a compromise with the White House and set the stage for an all-out battle when the measure reaches the floor.
The Democrats earlier had endorsed a two-year version of President Reagan's tax-cut plan calling for a 5 percent rate cut next October to be followed by a 10 percent cut in mid-1982, with tax rates reduced by the same proportion in all brackets.
However, Ways and Means Chairman Dan Rostenkowski (D-Ill.) yesterday told reporters that the committee's earlier action had been only to facilitate a compromise and no longer was binding now that the White House has decided to put together its own "coalition" bill.
Now that negotiations have broken down, Rostenkowski said, the Democrats have "abandoned across-the-board cuts" and will draft a bill that tilts more of the tax relief for individuals in the $10,000-to-$50,000 range, a traditional Democratic constituency.
He predicted that the new Democratic approach would be "more salable"in the House.
The reversal by the Democrats came as Reagan adherents formally introduced their "bipartisan" version of his bill, complete with new concessions to business, in effect giving back part of the business tax cut Reagan moved to take away last week.
In an economy move last Thursday, the administration had altered its business write-off plan to trim back the relief corporations would get by $50 billion over five years.
Yesterday, after days of angry reaction from business groups, the White House announced that it was restoring much of the tax relief in the business portion of the tax-cut plan. At the same time, spokesmen for major industry groups said they would continue to endorse the Reagan economic program.
The Democrats had hoped last month to strike a compromise with the administration, but Reagan dashed such prospects last week by abruptly abandoning previous negotiations and striking a bargain with conservative Democrats.
The administration successfully forged a similar coalition in a crucial budget battle earlier this year, enticing conservative southern Democrats to defect and support the president's proposed spending cuts.
Since the tax-bill compromise talks broke down last week, House leaders have come under mounting new pressures from liberals and moderates, who argued that now that the negotiations have faltered the party ought to push for a "traditionally Democratic" bill.
Democrats contend that the tax cuts Reagan is proposing would primarily benefit upper-middle and upper-income groups, for whom the same 5 percent or 10 percent cut in tax rates means more savings.
There was no immediate indication of precisely how the Ways and Means Democrats plan to tilt their tax cut to middle-income workers.
The technique most often mentioned is simply to widen tax brackets in the low- and middle-income groups. However, sources said there were no firm conclusions in yesterday's caucus. A second closed-door meeting is planned for this morning.
The administration's tax cut bill, introduced yesterday, was sponsored jointly by Reps. Barber B. Conable (R-N.Y.), ranking Republican on Ways and Means, and Kent Hance (D-Tex.), a member of the conservative Democrats group that defected on the budget battle.
The business tax changes the administration announced yesterday would speed up the timetable by which its proposed faster depreciation writeoffs for equipment purchases are phased into the tax code.