A marathon House-Senate conference early today approved legislation raising taxes by $99 billion over the next three years, the largest peacetime revenue-raising bill in the history of the nation.
The measure, which will provoke bitter fights on the House and Senate floors, includes a wide range of provisions sought for years by tax reformers, increasing taxes on cigarettes and telephone use and withdrawing a number of business tax breaks enacted by Congress last year.
Wearing pained expressions, some of Washington's highest-paid legislative lobbyists crammed the Ways and Means Committee meeting room as the conferees approved a host of provisions that would increase the tax burden on corporations and wealthy individuals.
The one major exception was a decision to abandon halving the deduction for business lunches -- the so-called "three-martini lunch." Instead, the panel voted to require restaurant owners to report estimates of the tip income received by their employes.
A major decision reached late last night would repeal, starting in 1984, the 1981 law allowing companies to sell unusable tax breaks through paper transactions called leases.
As a last-minute sweetener, the conferees approved a $2 billion program to guarantee extended unemployment benefits through the November election. Benefits in many states were scheduled to run out on Sept. 25, about six weeks before election day, a prospect sending chills down the spines of Republicans and Democrats.
While the conferees generally stuck to the provisions in legislation passed in late July by the Senate, which places much of the burden for raising new revenues on capital-intensive corporations, the defense industry and users of industrial revenue bonds, the Reagan administration tried a number of times to encourage the tax-writers to back off or modify the tax hikes.
The administration appeared to be concerned that the corporate community's unhappiness with reductions in business tax breaks would prompt increased House Republican opposition to the bill, which already faces uphill battles in both the House and Senate. Ways and Means Chairman Daniel Rostenkowski (D-Ill.) successfully opposed most efforts to water down these provisions, in part because he does not want to lose liberal Democratic support for the bill.
Acknowledging the prospect of severe opposition in both the House and Senate, Sen. Robert Dole (R-Kan.), chairman of the Senate Finance Committee, contended the legislation is essential because "we are at a time of economic need if not a crisis."
In a remark that brought laughter from the lobbyists who had been struggling for days to kill various provisions of the legislation, Dole said with a smile, "I want to thank all the public-spirited citizens who have been here day after day."
Partly to avoid the watchful eyes of the lobbyists, who often numbered well over 300, the conferees spent most of their time behind closed doors, emerging only to announce decisions. Some of the major decisions:
The cigarette tax would be doubled from eight cents to 16 cents a pack. The administration and congressional Republicans had sought to reduce the size of this increase in an effort to pick up support for the legislation from tobacco-state legislators, but they were blocked by House Democrats on the conference committee.
Special tax benefits would be sharply reduced for high-income individuals participating in corporate pension plans, including many doctors and lawyers who have incorporated for tax purposes. The legislation would limit tax deferrals to under $100,000 a year, rather than up to $157,000. As a sweetener, participants in Keogh pension programs would be able to contribute $30,000 a year, instead of $15,000.
The telephone excise tax would be increased from 1 percent to 3 percent.
A Senate proposal to reduce the capital gains holding period from one year to six months was rejected. Profits from the sale of assets qualifying for capital gains treatment are taxed at a much lower rate, a maximum of 20 percent, than income from ordinary sources, including wages.
The conferees voted to repeal, effective Jan. 1, 1984, the controversial corporate tax sale provisions enacted in 1981. That legislation has allowed companies to sell unusable tax breaks through paper transactions called leases. A decision reached late last night would prohibit the practice starting in 1984, while increasing the tax breaks involved in regular lease transactions.
Special breaks for insurance companies that use subsidiaries or other firms to shelter income from regular tax rates would be eliminated. From 1983 through 1985, these changes would mean that the industry will pay about $6.7 billion in additional taxes.
Special tax breaks going to companies that set up subsidiaries in Puerto Rico, particularly drug and high technology firms, would be cut back significantly.
Federal employes would be required to contibute 1.3 percent of their income to the Medicare system. The income ceiling in 1983 will be $35,100, making the maximum contribution $456 annually.
A wide range of airport user fees and taxes would be raised. The ticket tax would go from 5 to 8 percent, there would be a 5 percent freight tax, gasoline for private airplanes would be taxed at 12 cents a gallon, and a $3 fee would be levied on international tickets.
A 1981 tax break was reaffirmed, allowing recipients of up to $750 a year in dividends from public utilites to reinvest them in the utility tax-free. The Senate had sought to kill this.
A tax break allowing long-term contractors, particularly those in the defense and aerospace industry, to defer liabilites to the federal government for 10 years or longer would be severely restricted.
Across-the-board cutbacks were made in special tax breaks for corporations, including reduced tax liabilities for firms mining iron and coal, for financial institutions maintaining large bad-debt reserves, for exporting firms using domestic international sales corporations (DISCs), and for intangible drilling costs for major oil companies.
Almost all of these provisions are prompting intense efforts to kill the legislation, but the most concerted drive has come from the banking and savings and loans industries, which are bitterly opposed to a provision approved earlier in the week requiring 10 percent withholding on interest and dividend income.
There is already a strong effort in the House to force a separate vote on the withholding provision, the defeat of which would mean the loss of $11.7 billion in new revenues.
Despite pressure from the administration and the business community, the conferees stood fast on significant cutbacks in investment tax breaks for corporations that were enacted last year. These sections will deprive corporations of just over $45.5 billion in tax breaks from 1983 though 1987.