The $21 billion tax bill approved early yesterday morning by the Senate Finance Committee would make losers of some of the most powerful interest groups in the city: public utilities, federal employes, the tobacco and oil industries, exporters, insurance companies, banks and many more.
In a remarkable shift for the committee's Republicans, who just last year helped push to passage a bill giving business a record tax cut and individuals rate cuts skewed in favor of the rich, the bill approved yesterday appears to be the largest tax increase since World War II and 75 percent of it will fall on corporations and individuals in the upper brackets.
The bill faces powerful opposition, yet Finance Chairman Robert J. Dole (R-Kan.) yesterday predicted it will be passed by the Senate. "It brings fairness and balance and more equity to the tax code," he contended.
Throughout three days of closed-door caucuses and open committee sessions, Dole's goal was a bill that would quiet criticism of the GOP as a party favoring the rich at the expense of the poor.
At one point just before the voting began, Dole was walking down a corridor lined with mostly business lobbyists. "There are a lot of Guccis here," one person noted. "They'll all be barefoot by the time we're finished," Dole replied.
A spokesman for President Reagan, who is vacationing in California, gave the new bill a tentative endorsement. "The new tax increases are carefully crafted to preserve the incentives for savings and investment," the spokesman said. In fact, some of the business tax incentives enacted last year are significantly cut back.
Though the bill would increase cigarette and telephone taxes, two levies that fall on almost all income groups, nearly half the tax increases, $9.5 billion, would fall on corporations, and $6.5 billion would have to be paid almost entirely by taxpayers in the upper middle and highest brackets.
Major provisions of the bill:
* New reporting requirements would be set up to give the Internal Revenue Service notice of capital gains. Nearly half of all capital gains, most of which go to taxpayers in upper income brackets, now go untaxed largely because the IRS currently has no means for knowing when they occur.
* Financial institutions would be required to withhold for the IRS 10 percent of interest and dividend income. This proposal has been successfully fought by the banks, savings and loans and stockbrokers in the past. To appease these interests, the committee voted to cut from a year to six months the time assets must be held before profits from their sale can qualify as long-term capital gains, which are taxed at lower rates than ordinary income.
* Many tax preferences that benefit corporations would be cut 15 percent across the board. Among those affected would be the right to deduct all intangible drilling costs on oil wells in the year they are incurred, and to defer taxes on export profits made by special exporting companies called DISCs. In addition, corporations could use the investment tax credit to eliminate only 85 percent of their tax liability, instead of 90 percent.
* The federal unemployment tax required of employers would be increased an average of about $1.20 a month for each employe.
* The airline passenger ticket tax would be increased from 5 percent to 8 percent, and a tax on general aviation gas and jet fuel would be set at 12 cents a gallon. The air freight tax would be restored at 5 percent.
* The committee would repeal a provision that lets utility stockholders reinvest up to $1,500 a year in dividend income tax free.
* The life insurance industry would lose a special break allowing some firms to pay little or no tax, and multiyear contractors, particularly the aerospace industry, would lose much of a break that allows firms to postpone tax on income while deducting expenses incurred to make the money.
* The controversial provisions in last year's tax bill allowing corporations to buy and sell tax breaks would be significantly restricted, and would be eliminated altogether under a "sunset" provision effective Sept. 30, 1985, unless Congress affirmatively voted to preserve them.
* Corporations would have to pay accelerated income taxes, would be able to depreciate only 95 percent of a new investment instead of 100 percent and would lose some of the tax breaks now received when subsidiaries are set up in Puerto Rico. In addition, some of the special tax breaks available when companies merge would be eliminated.
* The corporate pension provision that currently allows major benficiaries to postpone taxation on income of $150,000 or more annually would be signficantly cut back, leaving a maximum of about $90,000 in income on which taxes could be postponed annually.
* The existing minimum tax on the wealthy would be replaced with a new one that would require about 200,000 persons, some of whom pay no taxes currently, to pay $200 million in 1984 and $300 million in 1985.
* The bill would reduce the amount of medical costs that are deductible. At present, medical bills in excess of 3 percent of adjusted gross income can be deducted. The bill would raise this to 10 percent, although casualty losses could also be included.
* Federal employes would have to start paying for Medicare coverage. The Medicare tax this year is 1.3 percent of wages up to a ceiling of $32,400.