The House Ways and Means Committee, forced into complete retreat by the banking industry, yesterday voted to send to the House floor a bill to repeal a year-old provision calling for withholding taxes on dividend and interest income.
The bill would prevent withholding from starting as scheduled July 1. It would cost the Treasury an estimated $13.4 billion through 1988, much of it in taxes on income that now goes unreported.
In a separate action, the committee voted 26 to 2 to raise the federal debt ceiling to $1.389 trillion through Sept. 30. Without this increase, expected to face resistance on both House and Senate floors, the government will have no power to borrow after June 1.
Ways and Means sent the withholding repeal legislation to the full House by voice vote and "without recommendation." Its action was forced by a discharge petition, a rarely used procedure by which a majority of the House in effect ordered the bill to the floor.
The banking industry has lobbied intensively to kill withholding. Rep. Thomas J. Downey (D-N.Y.) yesterday denounced Ways and Means' decision to yield, saying it would "send a signal that the Congress of the United States is a group of patsies to any well-organized group."
He was joined by Rep. Fortney H. (Pete) Stark Jr. (D-Calif.), who said bankers "just plain-out lie to their customers," and by Rep. Robert T. Matsui (D-Calif.), who said the banking lobby's tactics "have no place in Washington, D.C., and no place in a Democratic society."
Despite these complaints, the repeal legislation is expected to sail through the House on Tuesday. The withholding provision was the largest single section of the $100.4 billion tax increase bill passed last year.
Last month the Senate, also under pressure from bankers, passed a "compromise" to postpone withholding until 1987 and probably forever. The Senate version, which was rejected by Ways and Means, did include some new income reporting and other requirements aimed at reducing tax evasion.
Both the banking community and the Treasury, however, have decided that many of the provisions in the Senate bill are "unworkable." At the Ways and Means session yesterday, Republicans and Treasury officials proposed a restricted version of the compromise that would raise an estimated $4.9 billion, but Democrats on the panel rejected it.
Rep. Dan Rostenkowski (D-Ill.), chairman of the committee, said approval of anything but straight repeal would open the committee to charges of "skulduggery" and would be seen as an attempt to delay the legislation until after the July 1 starting date for withholding.
Aides to Sen. Robert J. Dole (R-Kan.), chairman of the Senate Finance Committee and a leading proponent of withholding, said he is likely to try to preserve some of the tougher reporting and penalty provisions. But the Senate may insist on acceptance of complete repeal in order to ensure that the banks escape the July 1 deadline.
In separate action, Dole's committee yesterday approved President Reagan's Caribbean Basin program. The legislation, which passed the House last year, would give 28 Caribbean countries greater access to U.S. markets and establish a tax deduction for conventions held aboard U.S. ships cruising in the area.