President Reagan will not propose restoring to his tax-overhaul plan the tax break currently enjoyed by two-earner families, administration officials said yesterday.
The deduction to compensate for the "marriage penalty" was among dozens of deductions proposed for elimination in the tax-revision package the president announced in May.
Using that deduction, married couples in which both spouses work are now able to reduce their tax bill.
The proposed elimination of the "marriage penalty" deduction generated sharp criticism from members of Congress in both parties when it was announced. Administration officials said at the time that they would consider reversing their decision.
Now, they say, revisions of the tax package to be sent to Congress next week will not include restoration of the deduction. It is Congress' responsibility to decide whether to reinstate the provision, officials said.
The deduction now allows working couples to subtract from their taxable incomes 10 percent of the lower-earning spouse's income, up to $3,000. It helps save a few dollars in the lower tax brackets and as much as $1,500 in the top bracket.
The deduction costs the Treasury some $7 billion in lost revenue per year, and its termination would help keep the tax plan from bringing in less revenue than the current tax code and increasing the deficit.
For the same revenue reasons, the administration will continue to favor converting the tax credit for child care -- which is worth the same dollar amount to every taxpayer -- into a deduction. That provision of the plan also caused political controversy because a deduction is more beneficial to upper-income persons than it is to those in lower brackets.
The only further changes the Treasury Department will propose in the tax plan will be measures to bring in $25 billion more in additional revenue over a five-year period so that the tax plan does not increase the federal deficit.
"We're there to help them work out problems. Beyond that, it's in the Ways and Means court," an administration official said, referring to the House's tax-writing committee.
Treasury Secretary James A. Baker III promised to come up with the revenue-increasing revisions when the Joint Committee on Taxation said in July that the Reagan plan would increase the deficit by $25 billion from 1986 to 1990.
The president has promised that his tax plan would neither increase nor decrease the amount of taxes the government takes in. He has said it was aimed, instead, at making the tax system fairer.
Administration officials were close-mouthed about what they will recommend, although some have said that the Treasury Department's first tax-simplification plan, released last November, would be a "fertile field" to look for additional revenue.
A number of proposed changes were dropped from that plan before Reagan presented it.
Members of the Ways and Means panel will have a chance to debate those recommendations and other options the weekend of Sept. 7-8, when they meet, along with Baker, other Treasury officials and academics, at Airlie House in Warrenton, Va.
The occasion is the committee's annual retreat. The official agenda calls only for discussion of the Reagan plan. But legislators can be expected to engage in what one committee staffer calls "major schmoozing" about the tax bill they will begin writing shortly after their return.