The House Ways and Means Committee yesterday announced that it will not begin hearings on repeal of the scheduled 10 percent withholding on dividend and interest income until June 2, less than a month before the controversial law is to go into effect.
The announcement by committee Chairman Dan Rostenkowski (D-Ill.) immediately prompted the American Bankers Association to charge that "such a delay seems like a deliberate attempt to trigger withholding," which is scheduled to start on July 1.
The Senate has passed legislation by 91 to 5 that would postpone withholding until 1987, and, in effect probably indefinitely.
In a letter to all House members, Rostenkowski asked that they "reserve judgment on the merits of withholding" until the hearings are completed. More than 300 House members are sponsoring repeal legislation, and most proponents of the withholding law acknowledge that they face almost certain defeat.
Although repeal has become an increasingly sure bet, Rostenkowski's decision to put off hearings, much less the writing of legislation, until June 2 will put a great deal of pressure on banks to buy new computer equipment needed for withholding.
An ABA spokesman called the timing of the hearings a "slap at the millions of Americans who have made themselves heard" on the issue.
Sources on the Ways and Means Committee said, however, that the withholding issue may be used as a vehicle for a major tax increase, depending on whether Congress can agree on a fiscal 1984 budget resolution calling for such action. A tax bill, the sources noted, would be likely to include tax increases directed at banks.
If withholding is repealed, there would be an estimated $13.4 billion revenue loss through 1988. The Senate version, which calls for increased auditing and penalties for violators, would result in a $5.2 billion revenue loss, according to optimistic estimates.
The withholding provision was enacted last year as part of a tax bill raising $98 billion over three years. In response to bank complaints that the mechanics of withholding are difficult and expensive, the effective date was postponed to July 1. But the banks used the delay to organize an intense lobbying drive to force postponement of the provision.
Rostenkowski said the withholding issue "presents important tax policy issues involving compliance with and fairness of the federal tax law . . . . To date the debate on withholding has been controversial, emotional and unstructured."
The hearings, he said, will examine a wide range of questions, including whether withholding is necessary if compliance rates are to be significantly improved, how much it would cost financial institutions to put in place and the importance of the provision in the larger effort to reduce the federal deficit.
Rostenkowski and the rest of the House Democratic leadership support withholding, although they acknowledge that retention of the law is unlikely.