The House Ways and Means Committee early today passed by voice vote a package of changes to its tax-revision bill that would raise the personal exemption to $2,000 for all taxpayers but put a new limit on individuals' itemized deductions.
The effect would be to make the full increase in the personal exemption applicable only to lower-income taxpayers.
The new proposal, offered by committee Chairman Dan Rostenkowski (D-Ill.), would make cuts in tax rates effective next July 1, six months after many deductions would be curtailed.
It was an attempt to unclog the final stage of the committee's tax-writing process, which became stuck for a time last night over members' objections to cutting tax rates less than President Reagan had proposed. But subsequent amendments, such as one offered by Rep. Charles B. Rangel (D-N.Y.) to preserve the tax exemption for all fringe benefits, delayed the vote on the final package. An amendment to the Rangel proposal by Rostenkowski paid for the revenue it lost by reducing the corporate tax rate 1 percentage point less than proposed, to 36 percent.
Rostenkowski's proposal would have four rates -- 15 percent, 25 percent, 35 percent and 38 percent. It also would retain the full deduction for state and local taxes and would not tax any portion of health insurance premiums paid by employers on behalf of their workers.
Those were the last unsettled issues in the massive tax bill, which substantially shifts the tax burden from individuals to companies.
Earlier, White House spokesman Larry Speakes said the administration would not announce Reagan's position on the package until the bill was complete and analyzed. Administration officials in the closed-door committee meeting later supported the Rostenkowski proposal.
The president had a briefing yesterday with Treasury Secretary James A. Baker III, who has attended many of the panel's sessions, but officials would not characterize Baker's advice. Some committee members and lobbyists suggested nonetheless that Reagan aides were not particularly upset with the committee bill and might support it.
The committee yesterday made final decisions on "transition rules" from current law to the new law. These usually are the effective dates and phase-ins for various provisions that mean little to the overall legislation but are the mother's milk of tax bills for individual interests.
The committee approved an 11-page compendium of exceptions and exemptions that included something for dozens of businesses and projects, from California garbage dumps to Tennessee stadiums to New York dormitories.
In the new Rostenkowski plan, the bottom tax rate of 15 percent would cover income of up to $22,500 for a married couple, the 25 percent rate would cover other income up to $43,000, the 35 percent rate up to $100,000 and the fourth rate above that.
For single taxpayers, the 15 percent rate would cover taxable income of up to $12,500. The 25 percent rate would tax additional income up to $30,000, and other income up to $60,000 would be taxed at the 35 percent rate, with a 38 percent rate effective after that.
Those levels are somewhat lower than those first proposed by Rostenkowski.
The top corporate rate would be 35 percent, the same as Rostenkowski had suggested. The top effective rate on capital gains -- profits on the sale of an asset -- was expected to be around 22 percent.
The top personal tax rate now is 50 percent and the top corporate rate is 46 percent.
The committee package, the result of almost two months of on-and-off tax-writing, would wipe out or curtail a host of tax deductions. It would repeal the investment tax credit, make depreciation write-offs less generous, limit the volume of tax-exempt bonds and curb tax benefits for insurance companies. It also would repeal income averaging and curb a few breaks for individuals, but would drop millions of lower-income Americans off the tax rolls through larger standard deductions and personal exemptions.
Many Ways and Means members had objected to portions of the legislation, which moved slowly and painfully through the drafting process. It was only after Rostenkowski promised members that state and local taxes could remain fully deductible -- a vote not expected until the end -- that the bill began moving.
The committee's unusually rapid finish also was expedited by a change in the bill-writing procedure that left most of the key decisions up to six-member working groups rather than the full committee. Once a task force made its decisions, its members felt obligated to support them and to persuade others to do the same.
Rostenkowski spent most of the day on the telephone with individual committee members, negotiating transition deals that would not cost so much in revenue that personal and corporate tax rates could not be cut as much as he wanted. The final transition package would lower federal revenue by about $12 billion over five years from what Rostenkowski had proposed, a relatively minor amount compared to the size of the total package.
In the end, Rep. Robert T. Matsui (D-Calif.) got a "grandfather" clause for certain development bonds issued in his state. Rep. Fortney H. (Pete) Stark Jr. (D-Calif.) gained some student loan bonds. New York representatives -- and Rostenkowski -- got a new exemption from restrictions on sales of tax breaks enacted in 1982 for mass-transit rail cars.
A crucial change made in the transition package would have a significant effect on federal workers contemplating retirement next year. Under current law, retirees first draw the tax-free portions of their pensions, made up of their own contributions. In later years their annuities are taxable.
The bill would mix tax-free and taxable benefits so that some tax could be charged each year.
Ways and Means changed the effective date of this provision from Jan. 1 to July 1 to avoid forcing qualified federal workers to decide on short notice whether to retire under the old rules.