The Reagan administration told Congress yesterday that next year it wants to start taxing such fringe benefits as free tuition for faculty families, free tickets for airline employes and the special merchandise discounts often given employes in factories and stores.
But Congress has blocked such taxation in the past, and, while technically the Internal Revenue Service will have the power to start collecting taxes on many fringe benefits on Dec. 31, the Treasury Department yesterday asked Congress for guidance on the issue.
Some fringe benefits specifically have been exempted from taxes by Congress in the past. These include most employer-paid health and life insurance premiums, employer-paid day care and employer-provided commuting vans.
The Congressional Budget Office has estimated that taxation of the remaining benefits--which means treating them the same as taxable income--could add $6.4 billion to federal revenues over five years.
But affected groups--university professors, airline flight attendants and others--have protested so vehemently that Congress has forbidden taxation of these so-called non-statutory fringes when the Treasury Department has gone after them before. The most recent such prohibition expires Dec. 31.
John E. Chapoton, assistant treasury secretary for tax policy, asked the Senate Finance Committee yesterday to help sort out the taxation question before the expiration. He said the exemption of fringe benefits, which have been a rising percentage of total worker compensation in recent years, has had "serious adverse effects" on federal revenues.
But he also said there is no way the Treasury Department can overcome the obvious "political considerations" and start taxing fringe benefits on its own, without express approval from Congress.
Finance Committee Chairman Robert J. Dole (R-Kan.), who has said he would rather tighten collection of existing taxes than impose new ones if increased revenues are needed to cut the federal deficit, did not commit himself on the fringe benefit question.
But he said if the compromise fiscal 1984 budget resolution adopted earlier this week by House and Senate conferees is approved, tax-writing committees will need to raise $73 billion over the next four years, and "we'll have to look at fringe benefits."
The administration has recommended one tax on fringe benefits; yesterday's hearing was called to consider its proposal that the tax exemption for employer-paid health insurance premiums be limited in 1984 to $175 per month per family or $70 per month per individual.
This would mean benefit cuts or higher taxes for an estimated 30 million workers.
The American Medical Association and the American Hospital Association endorsed the proposal, saying it would slow the rise in overall health care costs.
Chapoton argued that non-taxation of fringe benefits erodes voluntary compliance with the tax code and encourages employers to "provide tax free compensation" by increasing fringe benefits instead of wages.
He proposed taxing some benefits such as free meals "at the employer level," either by denying employers a business tax deduction on them or by levying an excise tax on their cost.
"Such a solution," he said, "simply says that if the employer wishes to provide compensation designed to avoid tax, he cannot have it both ways. He cannot design compensation that permits employes to pay no tax while still retaining the full tax benefit of deductions for himself."
The congressional moratorium on efforts to tax these benefits "has substantially strengthened the erroneous public perception" that they are not taxable under law, Chapoton said. He traced that perception to an IRS ruling in 1921 that free passes for railroad workers were gifts, not compensation, leading many workers today to believe that free passes for airline travel also are gifts.