The Senate yesterday opened debate on business and individual tax cuts endorsed by President Reagan as House Democrats moved to sweeten their alternative by nearly eliminating the estate tax and adding new tax breaks for oil producers and royalty holders.
The partisan bidding war for votes intensified as the House Democratic leadership and Reagan reached formal agreement to keep Congress in session until both the tax and budget bills are completed.
Rep. Dan Rostenkowski (D-Ill.), chairman of the Ways and Means Committee, described the tactical choice as "whether you want to lose courageously, or to win," and added "I'd like to win."
In an effort to pull dissident southern Democrats back into the party fold, the Ways and Means Committee raised the administration on the estate tax issue, and began to explore ways of going a step past Republicans in giving tax benefits to independent oil producers. The oil deal is still under negotiation as Democrats attempt to determine whether it will pick up enough votes to justify potential criticism.
In other developments, Rep. James R. Jones (D-Okla.), who engineered key elements of the 1978 tax cut bill, proposed a compromise between the administration and Democratic business tax cut plans. Some sources among both Republicans and Democrats indicated that it may become the vehicle for a final compromise.
In the Senate, which began debate on a bill that would reduce taxes for businesses and individuals by $281.5 billion through fiscal year 1984, Finance Chairman Robert J. Dole (R-Kan.) attempted to deflect Democratic charges that the GOP bill excessively favors the rich.
Dole said that the Democratic bill failed to close a "loophole" benefiting commodity traders. "They [the traders] are nice fellows, they go to fund-raisers," he said. "If you don't have to pay taxes, you can afford to go to fund-raisers." A center of commodity trading is the Chicago Board of Trade in Rostenkowski's home state.
The major change in the estate tax law as approved by the Ways and Means Committee would be to raise the basic exemption from $175,625 to $600,000 over six years ending in 1987.
While this provision almost parallels the Senate bill, the House committee also decided to lower the maximum tax rate from 70 percent to 50 percent over a four-period to end in 1985. The effect of these and other changes would be to reduce revenues by $4.3 billion in 1985. The Senate bill would cost the Treasury $3.7 billion that year.
The estate tax changes are directed to the beneficiaries of the estates of the well-to-do. At current levels, just under 3 percent of the estates are subject to tax; raising the exemption to $600,000 will reduce the number of estates subject to tax to considerably less than 1 percent. Both the Senate and House bills would raise the annual gift tax exclusion from $3,000 to $10,000.
One purpose of the estate tax changes is to pick up support from representatives concerned about the effect of current law on the estates of farmers and small businessmen. Harry L. Gutman, former deputy tax legislative counsel for the Treasury Department under the Carter administration, contended, however, that farmers and small businessmen make up only 14 percent of those who will receive the benefits of this tax break, while the rest are primarily the rich.
The Ways and Means Committee Democrats' explorations of possible changes in the windfall profits tax on oil are highly tentative. But some southern Democrats who have supported President Reagan in past budget votes said they had been approached by committee Democrats with a general proposal to exempt from the windfall profits tax up to 1,000 barrels a day of "new" oil. In addition, there would be a $3,000 annual credit for the beneficiaries of oil royalties.
These tax expenditures would be offset by increased liabilities for the major oil companies, including changes in the foreign oil tax credit. "The only way this can be sold to us [southern Democrats] and to them [northern liberals] is to make up any tax loss by f------ the majors," one of those contacted said.
The Jones proposal on business tax cuts, which presented for the first time to Ways and Means yesterday, would set up a 10-year process at the end of which the 10 percent investment tax credit would be eliminated; businesses would be allowed to write off equipment and vehicles in one year under a modified expensing plan while the depreciation provisions for buildings and utilities would remain the same as in the administration bill.