The House Ways and Means Committee completed work before dawn yesterday on a broad revision of the tax code that would cut individual taxes an average of 8.4 percent and make up the lost revenue -- $126 billion over five years -- by increasing taxes on corporations.
The package, which faces many other obstacles before becoming law, is far from the tax "simplification" idea advanced by the Treasury Department earlier this year. The White House said yesterday it will have no comment until President Reagan studies the committee action, but House members of both parties expressed reservations, and key members of the Senate expressed little enthusiasm for the package.
The package, expected to reach the House floor next month, cuts tax rates to a maximum 38 percent for individuals and 36 percent for corporations. It makes up the lost federal revenue by curtailing numerous deductions and credits, most of them affecting business.
More than 6 million low-income Americans would be added to the rolls of those exempt from federal income tax, and almost everyone would get a tax cut, ranging from 5.8 percent for those earning more than $200,000 per year to 9 percent for those in the $20,000-to-$30,000 bracket to even more for those with lower incomes.
But the bill also retains many of the tax benefits that Reagan and Ways and Means Chairman Dan Rostenkowski (D-Ill.) had sought to wipe out, and reduces tax rates less than both had proposed. Among other things, the bill would not tax fringe benefits and would not limit the tax deduction for mortgage interest on second homes.
The Reagan plan called for replacing the current set of 15 tax brackets, ranging from 11 percent to 50 percent, with three rates -- 15 percent, 25 percent and 35 percent. The committee produced four brackets, adding a 38 percent rate for higher-income taxpayers.
Although the top corporate rate would be cut from 46 percent to 36 percent, business overall would pay higher taxes because of the loss of numerous tax advantages.
Many of the more politically sensitive decisions were made in the last hours of the committee's weeks of drafting, including:
*Retaining the full deduction for state and local income, sales and property taxes. Reagan would have repealed it, but big-state politicians -- led by Gov. Mario M. Cuomo of New York, who yesterday announced his support of the committee bill -- complained loudly that the idea would discriminate against citizens of these states.
*Retaining the tax-exempt status of all employer-provided fringe benefits such as health insurance premiums.
*Raising the personal exemption to the full $2,000 Reagan requested, but effectively subtracting $500 per person for taxpayers who itemize their deductions. The standard deduction would be increased.
"We've accomplished much more than we even anticipated," Rostenkowski said after the committee recessed at 3:30 a.m. "I hope this document can be endorsed by the president. I hope he doesn't make any rash judgments . . . . I hope he recognizes that the legislative process has to work, that I have to negotiate, whereas he can lay out policy."
Ranking committee Republican John J. Duncan (Tenn.) said GOP members "believe the chairman did a masterful job of bringing out the legislation in circumstances which were difficult at best. But we also believe that our opportunity for real reform was lost in the process."
The White House yesterday issued a brief statement saying Reagan "has not yet had a chance to review any of the legislation. The president will study the committee's bill when he receives it."
Reagan's support is considered key to passage of the measure. Sources close to the Republican House leadership said earlier this week that they are convinced Reagan will back the committee bill, but call for changes in the Senate.
Senate Majority Leader Robert J. Dole (R-Kan.) declined to comment on the prospects for Senate consideration of the bill. "They the House have to pass it on the floor first," he said.
Sen. Bob Packwood (R-Ore.), Finance Committee chairman, said through a spokeswoman that if the House passes the bill, the committee, which has held hearings, will begin work on its version in early February.
Sen. Bill Bradley (D-N.J.), the leading Democratic proponent of tax overhaul, said he supports the House bill, but intends to try to strengthen it during Senate consideration.
The "bill provides a significant amount of economic security to low and moderate-income families," Bradley said. "I am anxious for the House to pass the bill and get the issue over to the Senate Finance Committee, where I intend to press for even greater reform along the lines of fewer loopholes and lower rates."
The package now goes to the House Rules Committee, which is expected to accede to the request of Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) and grant a rule for floor consideration that will permit only one amendment -- a substitute package expected to be offered by Republicans.
Passage on the floor is expected to be difficult, at best. Members say they have heard little enthusiasm from their constituents for cutting rates and limiting deductions, but have heard much from particular groups whose pet tax benefits would be cut.
In the Senate, 22 GOP incumbents are facing reelection battles in 1986, and members of the Finance panel have shown little interest in subjecting themselves to the kind of political pain just endured by Ways and Means members.