The Senate Finance Committee will consider a tax-overhaul package that includes proposals that sources said would link an increase in the personal exemption to a taxpayer's income and significantly increase the standard deduction for taxpayers who do not itemize their deductions.
Committee Chairman Bob Packwood (R-Ore.) said he would endorse most of a staff-produced package if final computer runs showed that it would bring in the same amount of revenue as the current tax code. If it brings in too little money, additional changes will have to be made to offset the cost of cutting corporate and individual tax rates, Packwood said.
After final reshaping of the proposals, Packwood plans to show them to committee members in private meetings, in hopes of getting a majority to support them as a starting point. Committee members strongly oppose using the tax bill approved by the House last December as a basis for their package.
"My hunch is it will get pretty good support," Packwood said of the staff effort.
He declined comment on specifics of the package, which is subject to extensive revision. Guessing the contents of the Packwood plan -- which aides say is more a set of changes than a comprehensive rewrite of the tax code -- has become one of the hottest games in Washington in recent days, played mostly by those with little knowledge of the details.
Although the proposals could be altered, sources suggested that the eventual draft is likely to include a proposal by House Republicans last year to raise the personal exemption to $2,000 from the current $1,080 only for taxpayers in the lowest income brackets. Increases would be provided for other taxpayers on a sliding scale based on income. Those earning more than $100,000 per year would get no increase on exemptions.
The House bill would raise the personal exemption to $2,000 for taxpayers and dependents who take the standard deduction and to $1,500 for those who itemize deductions.
Sources also said the proposals would raise the standard deduction significantly, perhaps as much as the large increases included in the House legislation. Mathematically, any tax bill that gives substantial tax cuts to those in the lower income brackets, as Packwood has said he wants to do, almost has to raise the standard deduction, one of the few tax benefits available to poorer taxpayers.
Sources also said the proposals provide more generous treatment for the tax-exempt bonds and depreciation schedules that finance low-income housing.
Packwood said he is tentatively planning to begin committee bill-drafting sessions by March 19, and to complete work in committee and move tax legislation through the Senate before that body takes up the budget resolution.
He spoke shortly after committee members sharply criticized a provision of the House-passed bill that would effectively raise taxes on retiring federal workers -- an indication that the Senate may not go along with that provision. The measure would require retirees to begin receiving the taxable portion of their pensions immediately upon retiring, rather than taking only the tax-exempt portion for up to the first three years.
"To change the rules arbitrarily, so swiftly, is just plain unfair," said Sen. John H. Chafee (R-R.I.).