President Reagan yesterday denounced the banking industry for its lobbying campaign against withholding of taxes on interest and dividends as the Senate remained deadlocked over a freshman Republican's effort to repeal the withholding law as part of a Reagan-backed jobs bill.
In some of the sharpest language he has ever used against such a sector of the business community, Reagan charged in a nationally televised news conference that the bankers' campaign "has led to a great distortion of the situation" and vowed to veto the jobs bill if the provision repealing withholding is attached to it.
" . . . I think that the banking industry would do a lot better to spend its time thinking about lowering interest rates than lobbying the way they are with regard to this legislation," the president said.
Defying both Reagan and GOP leaders of the Republican-controlled Senate, Sen. Robert W. Kasten Jr. (R-Wis.) vowed to push his repeal effort to an up-or-down vote, presumably on Monday.
"I believe the president is wrong," said Kasten, claiming to have enough votes to pass his proposal and even to override a veto of the legislation.
Frustrated Senate Republican leaders failed yesterday in a day-long attempt to round up enough votes to choke Kasten off and finally recessed the Senate for the weekend in hopes of buying time for a lobbying counterstrike by foes of repeal, a curious alliance of forces ranging from the White House to the AFL-CIO.
It will be a "full-court press," probably including the president, a Republican leadership aide said.
But Kasten insisted that time was on his side. "If the last 24 hours is any indication of the next 48 hours, we'll pick up strength," said the first-term Wisconsin senator, claiming he had picked up three votes since he took the Senate by surprise in introducing the withholding amendment to the jobs bill on Thursday.
By putting action off until Monday, Majority Leader Howard H. Baker Jr. (R-Tenn.) was backing the Senate up against a wall.
In addition to $3.7 billion for jobs and other relief for recession victims, the bill includes $5 billion needed to continue payment of unemployment benefits in 27 states and the District of Columbia after Tuesday, when existing funding is expected to run out.
But Kasten appeared to have gained the upper hand in manipulating Senate procedures to circumvent an anti-repeal filibuster by Senate Finance Committee Chairman Robert J. Dole (R-Kan.) and force a vote on his proposal when the Senate reconvenes.
Kasten's ploy prompted an unusually testy, if somewhat oblique, warning from Baker that such tactics threaten to turn the Senate into a "jungle" by undermining its normal rules and protections for minority factions.
In this case, the minority included the top leadership of both parties in the Senate, supported by the White House, but paralyzed by a backbench revolt fueled by a powerful lobbying campaign.
Kasten is trying to kill a provision of last year's tax bill that requires withholding of 10 percent of interest and dividend income after July 1, which the government estimates would raise about $20 billion over the next five years, partly by catching cheaters.
The banking industry has lobbied massively against the provision, and Congress has been flooded with so much mail on the issue that majorities of both houses have endorsed repeal in one form or another.
Denying that he is acting at the behest of the banking industry, Kasten contends he is fighting for "a people's issue" and says more efficient cross-checking by the Internal Revenue Service could prevent cheating just as expeditiously with less inconvenience and cost to consumers as well as banks and other corporations.
Withholding is a "net loser for America" that puts a particularly heavy burden on the elderly and other groups that "the Republicans are already in trouble with," Kasten said yesterday.
But Reagan challenged that point in his press conference, saying that, under exemptions in the law for the elderly, "as a matter of fact, virtually all senior citizens would be exempt." He accused the banking lobby of having "led many people to believe or to ignore the fact of how many millions of people would be exempt from any withholding . . . ."
There is considerable doubt whether the House, which is less tolerant of extraneous amendments than is the Senate, would agree in conference to a jobs bill that includes repeal of interest and dividend withholding. But Senate leaders are taking no chances in light of the fact that a sizable majority of the House has endorsed repeal.
Kasten suggested another reason. "The people out there are trying to protect one chairman's perquisites," said Kasten, in apparent reference to Dole, who had led the fight against repeal. Kasten contends that he only wants an up-or-down vote on repeal, which Dole refuses to give him.
As the Senate marked time on the withholding issue, it rejected, on a largely party-line vote of 53 to 34, a Democratic proposal to add $1.7 billion to the jobs bill for more spending on jobs, food and shelter programs and health care.
The add-on would do little more than bring the Senate bill up to the level of the $4.9 billion House-passed version of the legislation, which itself was "overly modest," said Sen. Carl Levin (D-Mich.), leader of the Senate Democrats' jobs task force.
While Levin argued that the Senate should "go the extra mile toward compassion," Senate Appropriations Committee Chairman Mark O. Hatfield (R-Ore.) contended the Democrats' proposal would only succeed in prompting a veto from Reagan.
Under pressure from Republicans and Democrats, Reagan has endorsed passage of a jobs bill but urged modifications in the House version, many of which have been included in the Senate bill. "You will not get a jobs bill if we adopt this amendment . . . . I would rather get half a loaf than no loaf at all," said Hatfield.
Only two Republicans, Sen. Charles McC. Mathias Jr. (Md.) and Arlen Specter (Pa.), supported the Democratic proposal.
The Senate also approved an amendment to restore 13 weeks of unemployment benefits for railroad workers that backers of the proposal said had been inadvertantly wiped out by earlier legislation.