Senate Finance Committee Chairman Bob Packwood (R-Ore.) presented to the Reagan administration yesterday an almost-complete tax-revision plan that would cut the top tax rate for individuals and business to 35 percent and restrict the deductions for state and local income taxes for high-income taxpayers.
Packwood's tax proposal, outlined in a meeting with Treasury Secretary James A. Baker III and top aides, is subject to revision by his committee's staff. It would retain the favorable tax treatment for timber, a key home-state industry for Packwood, and would cut back very little on tax breaks for the oil and gas industry, sources said. Several powerful members of the Finance panel represent oil-producing states.
Details of the proposal were made available late yesterday to The Washington Post.
Under the plan, which is expected to be shown to Finance Committee members next week, the top rate for capital gains -- profits on the sale of an asset -- would be about 20 percent, the same as the current rate. The plan includes three tax rates for individuals, 15 percent, 25 percent and 35 percent, as President Reagan proposed to Congress last year.
The current top tax rate for individuals is 50 percent, and the tax-revision measure approved by the House late last year had a top rate of 38 percent for people and a top rate of 36 percent for companies. Reagan proposed a 33 percent top corporate rate.
The personal exemption, which can be taken by all taxpayers and their dependents, would be increased from the current $1,080 per person to $2,000, but only for lower- and middle-income taxpayers. The increase would phase out after a certain income level.
The limitation on the deduction for state and local income taxes would be relatively slight, and it was not immediately clear how it would be focused principally on higher-income taxpayers. The deduction for state sales taxes and personal-property taxes would be eliminated, and the deduction for real estate taxes would be retained in full.
Business deductions for the cost of new investment, called depreciation, would be partly tied to inflation, a concession to the administration, and would be more generous than writeoffs in the House bill. The investment tax credit, which subsidizes up to 10 percent of the cost of new investment, would be repealed, as expected.
The tax revenue lost from restoration of some business tax breaks from the House bill would be offset by two new revenue-raising measures. One would restrict deductions companies now take for advertising. Instead of writing off all those expenses the year they are incurred, 80 percent of them would be deducted that year and the remaining 20 percent would have to be amortized over five years.
The proposal also calls for ending the deduction companies take for excise taxes. Those taxes include levies on gasoline, diesel fuel and telephone costs. This proposal, like the other revenue-raiser in the business area, is likely to be controversial because it hits certain industries, such as trucking, more harshly than others.
The meeting between Baker, other Treasury officials and Packwood in the senator's office was the first since the proposal moved into the final stages. Afterward, Baker said only that the meeting was "one of a series of discussions" and that they will "continue to talk." Asked if he was pleased with the progress on the legislation, Baker did not respond.
Although modifications will continue, aides said the tax plan was substantially complete in a form that would bring in as much revenue as the current tax code while reducing tax rates on individuals and business and curtailing tax benefits.
"The heavy lifting is done," said Finance Committee chief of staff William M. Diefenderfer.
Work on the proposal will continue during the weekend. Then Packwood will begin meeting individually with committee members early next week to seek their approval. He has said he would like to have 11 votes for the proposal before the 20-member committee begins drafting sessions, tentatively scheduled for March 19.
Baker would not say whether he thought the proposal met the goals President Reagan has laid out for a Senate tax bill: A top rate for individuals of no more than 35 percent, an increase in the personal exemption to $2,000 from $1,080 for low and middle-income taxpayers and more generous writeoffs for business investment.
A Packwood spokeswoman said the senator was "doing his best to meet the president's concerns."
The Packwood proposal also includes:
*Retention of the tax credit for research and development, in limited form.
*Cutbacks in the tax credit for rehabilitating historic buildings.
*Limitations on the deduction for consumer interest, which includes interest on credit card debt and auto loans, that are tougher than those in the House-passed bill.
Although aggregate revenue figures were not available, Packwood has said in the past that his proposal will transfer roughly the same amount of money from individuals' taxes to business. The House plan would shift the tax burden by about $140 billion over five years.