THE MAJOR sticking point in last week's Senate budget fight was increasing revenues by $9 billion next year and by $73 billion over the next three years. Those are modest amounts--measured either in terms of the more than $500 billion deficit called for in the administration budget for those years or their likely effect on the economic recovery --but they have important symbolic value. To the president, who opposes them, the tax increases are a retreat from his policy. To senators who support them, they are hard evidence of congressional resolve to get control of the frightening future deficits.
But what are the chances that the Senate would vote for tax increases of even these modest dimensions, let alone the larger amounts voted by the House? Maybe not zero, but not far from it. This week, for example, the Senate Finance Committee --responding to outside pressures--reported out two tax measures that would push the deficits still higher. One is the private and parochial school tuition tax credit bill sought by the administration, which would cost the Treasury about $2.5 billion through 1988. That measure will probably bog down in the Senate. But another revenue loser, reported yesterday, has stronger prospects.
Responding to congressional pressure generated by the banking lobby, the Finance Committee reported a bill repealing withholding of taxes owed on interest and dividends. Unlike the House, which voted a simple repeal, the Finance Committee approved a measure that would impose other new compliance provisions to help induce tax evaders to report some of the billions in investment income they now fail to report. But Sen. Russell Long is determined to strip off these compliance measures when the bill comes to the floor--thereby adding another $13 billion to the five-year deficit.
Tacked on to the withholding repeal are two other major revenue-losers. One is the administration's enterprise-zone tax credit plan, which would cost the Treasury an estimated $3.5 billion over five years. Another is an extension of the tax-free mortgage revenue bonds that are supposed to help moderate-income homeowners but are primarily an expensive--$2 billion over five years--tax subsidy for upper-bracket investors and builders.
None of these tax complications is pleasing to Finance Committee Chairman Bob Dole, who retains his commitment to broadening the tax base and simplifying the tax code as the best ways to protect the tax rate reductions that are at the core of the administration's tax policies. But Sen. Dole is well aware that a majority of his committee members voted against the modest revenue gains in the Senate resolution--and that more Democrats would be likely to defect if tax reforms, rather than simple rate hikes, were at issue. It's not hard to identify $9 billion in loophole closings that would actually improve the efficiency and fairness of the tax code. But without the president's support, the effort at reform is hardly worth making.