Prospects for House enactment of the $98.5 billion, three-year tax increase the Senate passed early yesterday improved when Democratic members of the House Ways and Means Committee said they are giving serious consideration to accepting it without change.
The Senate measure, passed by 50 to 47, would be the nation's largest peacetime tax increase if it is enacted and signed into law. Many House Democrats do not want to change the Republican-sponsored bill because they are fearful that it will be considered a Democratic tax increase.
The bill, a collection of more than 50 loophole closings, tax hikes and new enforcement provisions, includes 10 percent withholding on interest and dividend income; Medicare taxes for federal employes; cutbacks in business tax breaks; a strengthened minimum tax for the wealthy who currently pay little or no tax; reduced deductions for medical expenses; restriction on the 1981 tax-cut law allowing corporations to buy and sell tax breaks, and increased taxes on cigarettes, telephone use and airplane tickets.
It also includes a last-minute provision cutting in half the deductibility of business meals--the "three-martini lunch." The tax bill is quickly emerging as a political football to be tossed between Democrats and Republicans.
"If the Democrats fail to act on the bill in the House, we have got a campaign issue in November that won't stop," Sen. Robert J. Dole (R-Kan.), chairman of the Senate Finance Committee, said yesterday. "It's suddenly in the lap of Tip O'Neill. The future of this economy is now up to House Speaker Thomas P. Tip O'Neill."
Taking pains to describe the Senate bill as a tax reform bill, not a tax increase, Dole said: "This is the biggest tax reform bill in the century . . . . We did it. When I say we did it, Republicans did it. Not a single Democrat voted for it."
Ways and Means Democrats, meeting in closed caucus Thursday and in smaller groups yesterday, voiced fears that any significant change in the Senate bill, particularly any addition of taxes on oil, would turn the legislation into a "Democratic tax increase."
The Democrats, who control the House, particularly balked at a proposal by Rep. Dan Rostenkowski (D-Ill.), chairman of Ways and Means, to take back oil tax breaks enacted last year, and to cut back the intangible drilling cost tax deduction for the politically influental independent oil producers.
This reluctance angered the minority liberal wing on the committee. Rep. James M. Shannon (D-Mass.) contended that the tactic of "rolling over" and accepting the Senate bill in an effort to make sure the tax increase remains linked to the GOP, "is the kind of cute stuff that has tripped up the Democratic Party for the last year and a half."
"These guys are saying, 'Let's not leave our fingerprints on it.' But that's not going to sell in this country."
The Senate bill was passed at 4:47 a.m. yesterday, after a 19-hour session. Throughout the fight, Dole was defeated only once on the floor, and he used the defeat as an opportunity to add the "three-martini lunch" amendment, a proposal that in the past has been the initiative of reform Democrats. The restriction would not apply to out-of-town business meals and Treasury Secretary Donald T. Regan voiced doubt that the administration would support it.
Under intense pressure from the hotel and restaurant lobbies, the Senate rejected a Finance Committee proposal to require withholding on the tip income of waiters and waitresses. It was defeated 70 to 25, cutting out $2 billion in new revenues over three years, and briefly making the tax bill fall below the $98 billion target in total new revenues mandated in the fiscal 1983 congressional budget resolution.
However, Dole then proposed an amendment cutting in half the deduction businessmen and companies can take for "work-related" meals, a proposal possibly even more opposed by the restaurant and hotel industries than the defeated tip requirement.
The lobbies did not, however, have time to gear up for the fight, and the amendment, which became known as the "1 1/2 martini lunch," passed, 57 to 40.
The vote on the amendment reflected the turnaround in the politics of the Senate, as Republicans this year have become proponents of tax reform, and Democrats have generally been forced to take a back seat. Just five years ago, the "three-martini lunch" issue was being raised by President Carter in a futile effort to enact tax reform legislation that was defeated in large part by Republicans.
Of the 57 votes in favor of the Dole amendment, 46 were cast by Republicans and 11 by Democrats, and many liberal Democrats, including Sens. Paul S. Sarbanes (D-Md.), Dale Bumpers (D-Ark.), Carl Levin (D-Mich.) and Christopher J. Dodd (D-Conn.), ended up voting against it.
Among local senators, Charles McC. Mathias Jr. (R-Md.) and John W. Warner (R-Va.) voted for the Dole amendment while Harry F. Byrd Jr. (Ind-Va.) voted against it. In the vote on final passage, area senators split along party lines, with Byrd joining Republicans in voting for the tax measure.
As the Senate worked into the early morning hours, a number of members used the opportunity, along with sharply restricted rules on debate that allowed little or no discussion of amendments, to tack on provisions benefiting single companies in their home states.
The restrictions on the sale of corporate tax breaks by unprofitable firms to profitable ones--known as "safe harbor leasing"--were of particular interest. Sen. William S. Cohen (R-Maine) won approval of an amendment designed to allow Scott Paper Co. to take advantage of tax leasing in a $195 million capital expansion program. The Cohen amendment will give the company about $20 million to $25 million in tax breaks.
Similarly, Sen. Slade Gorton (R-Wash.) won approval of an exemption from the new restrictions for aircraft. It will mean that about 12 airplanes under construction at the Boeing Cp., which has headquarters in the state of Washington, can be purchased with corporate tax sales. Nationwide, the Gorton amendment could cost more than $200 million over three years.
Dole said at an afternoon news conference that he plans to try to lessen the severity of one provison designed to limit the deductibility of medical expenses.
When the bill is taken up by a House-Senate conference committee, Dole said he would try to reduce from 7 to 5 percent of taxable income that must be spent before deductions can be taken for medical expenses. As currently written, the bill raised the percentage, or "floor," from 3 to 7 percent.