In the first day of a three-day tax-writing marathon, the House Ways and Means Committee yesterday closed a few loopholes but opened one for small business.
The committee voted to curtail some varieties of tax-exempt bonds, such as those that pay for sports and convention centers. But it retained the tax-exempt status of others and created a new tax credit for small businesses.
"All in all, I thought it was not a particularly good day for tax reform," said Rep. Donald J. Pease (D-Ohio.)
The day also marked the first test of tax-writing by subcommittee: Packages on small business, bonds and agriculture considered by the full panel were the result of negotiations by six-member working groups appointed by Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.). The results: The committee agreed to most suggestions, but those compromises made it even harder to keep the whole package from losing revenue and, thus, increasing the deficit.
Rostenkowski has been spending the last few days trying to negotiate compromises. One focus has been on the controversial issue of the deductibility of state and local taxes.
He has, for example, asked members opposed to limiting the deduction for state and local taxes if they would support a tax package that retained the deduction but included elements they dislike. He probably would pay for that by raising the top rate from his proposed 35 percent to 37.5 percent or 38 percent and lower the income levels at which the top rate applies.
Committee members said yesterday that a firm deal on the controversial issue of state and local taxes has not been made.
"This is a matter of political art,' said Rep. Thomas J. Downey (D-N.Y.). What happens is, there are understandings . . . . I have the impression the state-and-local deduction will be retained.'
"I can assure you, as someone who has been most closely aligned with this particular issue, that there is no deal," said Rep. Raymond J. McGrath (R-N.Y.).
Rostenkowski told members yesterday that "nothing is in concrete," according to Rep. Guy Vander Jagt (R-Mich.), who said nonetheless that "I fear and suspect a deal has been struck." Treasury Secretary James A. Baker III said yesterday that the administraion still insisted the top personal tax rate be no higher than 35 percent.
Committee members are to meet tomorrow and Sunday in an unusally intense effort to make headway on the bill, which has been moving slowly. Because no meetings are scheduled for next week -- House tax writers will be occupied with a conference committe on budget legislation -- the weekend meetings are viewed as an indicator of whether Ways and Means can produce a tax bill.
Altogether, the committee's actions yesterday reduced projected tax revenue collections by $6.8 billion over five years in relation to Rostenkowski's proposals.
Specifically, the committee agreed to:
*Curtail tax-exempt bonds, which cost the Treasury revenue because those who buy them do not have to pay taxes on the interest they get. All governmental bonds would remain unrestricted, as would such quasi-government bonds as those used for airports and ports.
Others, such as those for universities, mass transit, student loans, mortgages, multifamily rental housing and sewage tratment, could be issued but would be limited by a volume "cap." Tax-exempt bonds used by private business would be continued as a result of the committee's action.
*Create a new tax credit of 20 percent for companies with gross sales of more than $25 million. The money saved would have to be repaid to the government after a company grew, but the provision would still cost $400 million in revenue between 1986 and 1990.
The small-business changes also included a new way of letting companies account for inventories that is more generous than the method the tax code now permits.
As expected, the committee agreed to cut tax rates for small companies. The committee would tax profits of up to $50,000 at a rate of 15 percent and would apply a 25 percent rate to profits between $50,000 and $75,000.
Amounts above that would be taxed at the 35 percent rate Rostenkowski is proposing for all corporations, although the committee may change that. The current top corporate rate is 46 percent.
*Tighten up on a few tax benefits for farmers, such as one that lets them deduct expenses early in the farm season and then pay low capital gains taxes on the profits later.