Treasury Secretary James A. Baker III said yesterday that the business community would like President Reagan's new tax-simplification plan more than the Treasury Department's original proposal.
Baker told a business audience that the program Reagan will unveil next Tuesday is "far less offensive" in the way it shifts the tax burden from individuals to corporations.
Baker's speech to the National Association of Manufacturers also pointed up the potentially contradictory sales pitch the administration is expected to use to promote a plan that will be described as "populist" at the same time it restores some business tax preferences eliminated in the original Treasury proposal.
Because the package will bring in the same amount of revenue as current law, the net effect of the changes made in the original plan means the shift in the overall tax burden to corporations will be smaller.
The first plan would have significantly shifted the tax burden from individuals to corporations. Business would have paid 15 percent of all federal revenues by 1990 instead of the 10 percent projected under current law. Individuals would have paid 46.2 percent of all taxes, rather than the 48.5 percent they would pay without changes in the tax code.
Baker told the group that "there are going to be a number of specifics in the tax reform proposal which I think corporations generally will receive with great enthusiasm," such as the right to deduct from their income a portion of dividends paid to shareholders.
The proposal is expected to permit companies to deduct 10 percent of the dividends they pay, while the original version proposed a 50 percent deduction.
Although Baker told manufacturers they would prefer the package to its predecessor, administration sources confirmed yesterday that the new plan will include a provision to recapture some of the large financial gains that dropping the corporate tax rate from 46 to 33 percent would bring.
The windfall would arise principally for companies that defer taxes through such commonly used provisions of the tax law as accelerated depreciation, which allows companies to lump write-offs in the early years of the life of an investment.
If the corporate tax rate were lowered during that period, the deferred taxes would never be paid in full. The provision would have a threshold that would exclude smaller firms, but still would raise substantial amounts of revenue, sources said.
Baker emphasized the "populist" theme with which Reagan is expected to sell the tax proposal in a campaign begininng next week, saying that public frustration with the tax code "has translated into a loss of respect for the government generally."
"This populism is anti-big government, it's pro-market and it's pro-fairness," Baker said. "Ronald Reagan has built a career on this. He's built a career on this philosophy. He carried 49 states on it. And he can carry tax reform on it."
Echoing that theme, Assistant Treasury Secretary Ronald Pearlman was reliably reported to have told a group of business executives yesterday that changes from the original plan in the international area were "not enough to please you."
In particular, the foreign tax credit still would be applied on a country-by-country basis, so that write-offs from high-tax countries could not be used by companies with international operations to offset income from low-tax countries, sources said.
Baker was more circumspect about a minimum tax. Asked whether the administration planned to propose one, Baker said it "should not be considered outside the context of tax reform" and that Reagan "will be announcing on Tuesday night a proposal to deal with it within the context of tax reform."
Meanwhile, Rep. Jack Kemp (R-N.Y.), one of the leading advocates of tax simplification, said he remains dissatisfied with the administration's plan because the top tax rate of 35 percent is too high.
"I'm opposed right now to Treasury II," Kemp said at a breakfast with reporters.
Kemp and the other author of the principal GOP tax-simplification alternative, Sen. Robert W. Kasten Jr. (R-Wis.), have scored one victory in recent days: The administration has agreed to raise the personal exemption to $2,000 immediately rather than phasing it in over three years.