The Senate Finance Committee voted, 13 to 5, yesterday to extend the Medicare payroll tax to all state and local government employes but erupted in controversy over a surprise move to add the tobacco price-support bill to the panel's deficit-reduction package.
"It's outrageous we're asked to vote on something like this," Sen. Bill Bradley (D-N.J.) said.
The tobacco bill's sponsor, Sen. Jesse Helms (R-N.C.), is not a member of the Finance Committee, which has no jurisdiction over tobacco price supports.
But, in a letter to panel Chairman Bob Packwood (R-Ore.), Helms said he and "all senators from tobacco-producing states" would agree to permanent committee extension of the 16-cent-a-pack federal cigarette tax if the panel includes Helms' measure. The tax is scheduled to fall to 8 cents Oct. 1.
Many familiar with Helms' bill, which some consider a bailout for tobacco states and a windfall for cigarette manufacturers, say it may have a far better chance as part of a Finance Committee deficit-reduction package than if presented alone to the full Senate.
Senate Majority Leader Robert J. Dole (R-Kan.), a member of the Finance and Agriculture committees, offered an amendment embodying Helms' proposal as Finance, in a second day of action, struggled to find $38 billion in spending cuts and tax increases over three years.
Approval of the 16-cent cigarette tax, which is within the panel's jurisdiction, would bring in $4.9 billion from 1986 to 1988 and allow the committee to exceed its goal while padding the deficit-reduction package a bit by cutting $235 million from the tobacco program.
Dole sprang the plan, which is expected to reach a final vote today, minutes after the committee, on a surprisingly close 10-to-8 vote, defeated a proposal to boost the cigarette tax to 32 cents.
The Medicare provision would make Medicare coverage mandatory for the first time for all current and future state and local government employes, starting Sept. 30, 1986. The House Ways and Means Committee has approved a related provision that would cover only newly hired employes.
The employes and their agencies would each be required to put 1.45 percent of their pay into Medicare. Of the 13.5 million state and local government employes, almost 9.5 million are subject to Social Security and Medicare taxes because their government employers voluntarily enrolled in the system.
The provision would make Medicare coverage compulsory for all and provide $5.1 billion in new revenues for the three years.
Sen. Daniel Patrick Moynihan (D-N.Y.) said this change is justified because "upwards of 80 percent" of state and local government employes not paying the tax receive Medicare benefits anyway.
This occurs if they are married to a person eligible because of work in covered jobs or because they themselves do minimal work in covered jobs at different times.
Sen. George J. Mitchell (D-Maine) and others objected that costs to local governments would be heavy, and Sen. Russell B. Long (D-La.) said mandatory taxes on state and local governments may be unconstitutional.
The committee also voted to impose a $5 "customs user fee" on anyone, including citizens, entering the country by plane or boat except from Mexico and Canada and nearby Caribbean islands. A plan to charge $1 for those entering by any method from Canada and Mexico was killed. Fees would also be imposed on commercial vessels, trains and trucks.
The committee also voted to abolish income-averaging on federal taxes for former students