President Reagan yesterday agreed to postpone the introduction of his tax-simplification plan by eight days after a warning from Republican congressional leaders that it could interfere with debate over the budget and lead to an unwanted tax increase.
Reagan, who had planned to unveil the tax proposal Monday, is now scheduled to launch it May 28 in a nationally televised address from the Oval Office, spokesman Larry Speakes said.
The postponement followed appeals from Senate Majority Leader Robert J. Dole (R-Kan.) and House Minority Leader Robert H. Michel (R-Ill.). The Democratic-controlled House is expected next week to take up the congressional budget resolution for fiscal 1986, with a major confrontation in prospect over differing Republican and Democratic spending plans.
Meanwhile, administration sources said several major provisions of the tax-simplification proposal remained at issue, including the personal exemption, following a White House meeting yesterday between Reagan and senior officials.
Reagan yesterday told aides he wanted to increase the personal exemption to $2,000 from the current $1,040 in the first year of the proposal.
But Treasury Department officials said the revenue loss from such an increase would be difficult to offset elsewhere in the plan. One option, the sources said, would be to gradually phase-in the increase to a $2,000 personal exemption over three years, starting at $1,500 in the first year. But a final decision has not been made, the sources said. Another issue still being settled yesterday was tax breaks for the oil and gas industry.
A senior official said Reagan expressed concern that adequate industry incentives remain in the tax code for national security reasons in case of another energy shortage.
Reagan was also still discussing with aides the corporate minimum tax that is to be included in the proposal. Officials said that even with such a minimum tax, difficulties remain in making sure that all profitable corporations pay at least some tax, a selling point that Reagan wants to use in campaigning for his proposal.
Aside from these points, however, Reagan has given his approval for other major provisions in the plan, which would reduce individual and corporate tax rates while eliminating many popular tax breaks.
Officials said Reagan approved a three-tiered individual income tax rate structure of 15 percent for low incomes, 25 percent for middle incomes and a top bracket of 35 percent. A senior official, who asked not to be identified, said an effort was made to include the "majority of Americans" in the lower two brackets.
While the exact amounts have not been set, the official said the 15 percent bracket would cover all those with adjusted gross incomes of up to about $30,000 a year. The next bracket, 25 percent, would cover those with adjusted gross incomes of up to about $70,000 a year, he said.
"That means that the majority of Americans won't be paying any more than 25 percent," the senior official said.
The official also said "there's a certain beauty" to the top rate of 35 percent because, if enacted by Congress, it would mean that Reagan had cut the top rate in half in his presidency, from the 70 percent prevailing rate when he took office in 1981. Reagan decided against bringing the top rate down to 30 percent as some congressional tax revision advocates -- including Rep. Jack Kemp (R-N.Y.) and Sen. Robert W. Kasten Jr. (R-Wis.) -- had suggested. Both of them said yesterday that they would attempt to reduce the 35 percent rate.
Reagan has also approved an effective tax rate on capital gains of 17.5 percent, less than the current 20 percent or the 21 percent that was under consideration. It would be realized by letting investors exclude from taxation 50 percent of the gains on appreciation of an asset. The current exclusion is 60 percent.
Thus, at the 35 percent top individual rate, the 50 percent exclusion yields a 17.5 percent effective rate. A senior official said White House chief of staff Donald T. Regan, a former Wall Street executive, had pushed for this capital gains provision.
Officials also said Reagan has approved a provision allowing corporations to deduct 10 percent of the dividends they pay, as opposed to a 50 percent deduction proposed in the initial Treasury Department tax plan issued last year. Currently, corporations cannot deduct their dividends.
The decision to delay the launching of Reagan's tax plan was made after Dole, Michel and other Republican strategists warned the White House that it could seriously interfere with the budget debate in the House next week and lead to a possible tax increase.
House Ways and Means Chairman Dan Rostenkowski (D-Ill.) said, "Delay saps the cause of tax reform -- and raises doubts about the president's nerve.