House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) yesterday unveiled an alternative to President Reagan's tax revision plan that reduces tax breaks for high-income taxpayers but still drew fire from committee Democrats who said it improved little on the Reagan proposal.
The provisions retain the basic outlines of the Reagan plan, reducing the top personal tax rate to 35 percent from 50 percent and curtailing numerous deductions. But it would cut the corporate tax rate by two points less than the Reagan proposal would, is less generous in taxation of capital gains and business deductions and would not fully eliminate the deduction for state and local taxes, as the Reagan plan does.
Reaction to the proposals, presented to committee members during a closed-door session, varied from cautious optimism to outright skepticism.
"I liked the Reagan plan better. I thought it was a better starting point," Rep. Beryl Anthony Jr. (D-Ark.) said. "I don't see that it picked up any support."
Rep. Richard A. Gephardt (D-Mo.), a leading proponent of overhauling the tax code, said the Rostenkowski proposals were "better than the Reagan bill. Any time we can improve the bill, that's useful. It doesn't mean we can't do more."
Other committee members said they were willing to use the new provisions as a starting point, which is how Rostenkowski has described them as the committee began the complex process of drafting legislation.
The committee will base its drafting on the Rostenkowski proposals, which replace about half the elements of the Reagan plan. If panel members cannot agree on how to change a particular provision, that provision will stand.
Earlier this month, Rostenkowski predicted that his committee could complete work on a tax overhaul in two to three weeks. Yesterday, he was less optimistic.
'We don't know how long it will take to complete a tax bill. We will take as long as we need, " Rostenkowski said. Mentioning that Reagan had wished him luck during a telephone conversation yesterday, Rostenkowski said he hopes the House can complete action on a tax measure before Thanksgiving.
According to figures compiled by the Joint Committee on Taxation, the new options would give taxpayers getting more than $200,000 per year a 10.5 percent tax cut, while the Reagan plan would provide a tax cut of 15.2 percent.
Taxpayers making more than $75,000 a year would get a smaller cut than the Reagan plan would provide, while taxpayers in the income brackets below that would get a larger cut than they would in the Reagan plan, with one exception. Those making between $20,000 and $30,000 would get a cut of 8.9 percent under Rostenkowski and a 9.3 percent cut under Reagan.
Committee aides said the Rostenkowski options would shift the tax burden from individuals to corporations at about the same extent as the Reagan plan. That proposal would increase corporate taxes by 22 percent by 1990 while cutting individual taxes by about 7 percent.
The increase in benefits for lower-income taxpayers was accomplished in part by changing the president's proposal to double the personal exemption, the $1,000 taxpayers can deduct for themselves and each dependent.
The Rostenkowski proposal would increase that exemption to $1,500, but also would restructure the standard deduction so that taxpayers who do not itemize their deductions could subtract $500 each for themselves and dependents from their income. Elderly and blind taxpayers also could add $500 to their standard deduction.
The effect of that change would be to leave lower-income taxpayers, who generally do not itemize, as well off as they would be under the Reagan plan, while upper-bracket taxpayers would be slightly worse off.
In other proposed changes for individuals, the Rostenkowski proposals would:
*Eliminate the deduction for sales and personal-property taxes, as the Reagan plan proposes, but retain some of the deduction for state and local income and real-property taxes. That limitation would let taxpayers deduct their taxes up to $1,000 for a married couple or $500 for an individual, or let them deduct the amount of their taxes that exceeded 5 percent of their adjusted gross income, whichever is greater.
Committee members from New York, whose state has been at the forefront of opposition to the repeal of the deductibility of state and local taxes, had a mixed reaction. Reps. Raymond J. McGrath (R) and Thomas J. Downey (D) both rejected the compromise on state and local taxes, while Rep. Charles B. Rangel (D) said he would prefer to use the Reagan plan as a starting point.
*Accelerate repeal of the deduction for charitable contributions that those who do not itemize can take. The Reagan plan also would repeal the nonitemizer deduction.
*Tax health-insurance premiums paid by an employer on behalf of workers, but only to the extent they exceeded $120 per month for an individual or $300 a month for a married couple.
*Preserve a popular tax break under which employes can set aside tax-deferred income for retirement, but in a drastically curtailed fashion. Only $5,000 could be set aside under the provision, called 401 (k) after its section of the tax code, and contributions to an IRA would fall within that limitation.
*Reduce the penalty under which married couples, where both work, pay higher taxes than two single individuals with the same combined salary. Committee aides said the change would be accomplished by restructuring rates and brackets, not by a specific deduction, the case in current law.