When the Senate Finance Committee found itself debating last week whether to tax trucks carrying hamburger buns more than trucks carrying baseball gloves, Sen. George J. Mitchell (D-Maine) was moved to point out how far the panel had strayed from President Reagan's No. 1 domestic policy goal.
"Here we are, 20 politicians," he observed, "deciding which equipment is productive and which is not. At least in the Soviet Union, the economists decide it."
This is hardly the approach that Reagan outlined to the American people last May in unveiling an ambitious plan to simplify the federal tax system.
The president called for a tax code stripped of favors for the few and offering lower rates for all. The new system was to eliminate "tax subsidies" for established industries, creating a freer market in which the old and new would compete on equal footing.
The measure being drafted by the Finance Committee still aims for a dramatic rate cut. But after the panel's first full week of tax-writing, two leading architects of the administration's original blueprint joined a range of supporters and opponents in declaring most of the blueprint's goals abandoned.
The committee voted, with few dissenters, to protect longstanding tax breaks for oil, gas, timber and other politically influential industries. Senators also singled out for special favors a laundry list of ventures, including broom-making and chemical production. For now, the system for writing off business investment would be less generous than current law. But in coming weeks, senators will be tempted many times to protect other industry groups.
"What they have done is definitely not in the spirit of fundamental tax reform," said economist Charles E. McLure, deputy assistant treasury secretary until last year and now a senior fellow at Stanford University's Hoover Institution. "What we see now is there are no principles except political expediency. There's simply no one looking out for the general public, and the shots are being called by the special interests."
Said former assistant treasury secretary Ronald A. Pearlman, another principal author of the November 1984 Treasury Department proposal that launched tax overhaul: "I think there is a real question as to whether the entire process will be simply a reshuffling of existing tax preferences or whether there really will be a meaningful reform of the income tax system."
The 1984 proposal, written in a political vacuum, had simple goals: to eliminate hundreds of billions of dollars in tax breaks favoring certain industries, regions and people, to tax all income at the lowest possible rate and to remove from the tax rolls all people below the poverty line.
Under pressure from everyone from oil lobbies to small town mayors, successive versions of "tax reform" -- the president's proposal to Congress, a House bill passed last December -- increasingly sacrificed purity for politics.
When Finance Committee Chairman Bob Packwood (R-Ore.) weighed in with his proposal last month, the politics were even more palpable. In an effort to bring along a reluctant Senate, the chairman restored tax breaks for timber, oil, gas, mining and other politically powerful industries, and resorted to an effective 50-percent increase in excise taxes to make up the difference in tax revenue.
Using the Packwood plan as a starting point, the committee last week voted to preserve some benefits for small retailers, real estate and owners of business automobiles. In one stroke, the senators voted $10 billion in tax relief for computers and central office telephone switching equipment. They also created three new loopholes for farmers.
In another departure from Reagan's proposal, the committee voted 12 to 8 to establish a favored class of equipment and machinery whose cost could be written off more quickly than others. Among hundreds of investments chosen for special treatment were those in airplanes, farming, mining, oil, timber, tobacco, knitted goods, dental supplies, nonferrous metals, steel, electronic components, automobiles, musical instruments, brooms, brushes and caskets.
Among those excluded were investments in information systems, satellite communications, office furniture, nuclear power and trash-to-steam plants.
The list of favored industries grew during lengthy negotiations among most members of the committee. Those assets selected, dubbed "productivity property," were defined as those used in sectors of the economy crucial to the competitiveness of U.S. manufacturers abroad, panel members said.
One result was that trucks carrying tobacco got more generous writeoffs than those carrying desk chairs. Pipe-fitting machines bought by plumbers, a service industry, were treated less kindly than the same machines bought by a manufacturing firm.
"There is absolutely no reason why the Congress of the United States should tell business what to do," said Joseph Minarik, a tax economist with the Urban Institute. "If we don't believe business knows what it's doing, why don't we nationalize the economy and let the tax committees run it?"
Similar misgivings were expressed by Finance members who voted against the depreciation system. Sen. William L. Armstrong (R-Colo.), for example, said: "I think it's nuts for us to sit down and decide which are productive assets and which are not."
Deputy Treasury Secretary Richard G. Darman, who went from the White House to the Treasury Department with Secretary James A. Baker III after the original tax-overhaul blueprint was unveiled, responded that if politics is to play a role, the committee could do worse than to favor manufacturers.
"It has been clear since [the first treasury plan] was launched," Darman told committee members, "that there was close to zero practical support for that approach," in which the marketplace rather than the tax system would guide most investment choices.
"We've long since passed the issue of pure philosophy," Darman said. "We've been in the business of state economic planning as long as we've been in the business of practical politics."
Senators said they decided to favor manufacturing because that sector would be most hurt by the committee's plan to repeal the investment tax credit, a $38 billion-a-year benefit that rebates up to 10 percent of manufacturers' investments in equipment and machines.
Thus the beneficiaries of the investment credit became the beneficiaries of the "productivity property" system.
The move split the business community, with the Chamber of Commerce and the National Association of Manufacturers complaining that they could not support an approach benefiting only one segment of their memberships.
The lobbies most supportive of the plan sponsored by Sen. William V. Roth Jr. (R-Del.) and others were those representing heavy manufacturers. Two of their key strategists were longtime business lobbyists Charls E. Walker and Ernest S. Christian Jr., who represent major rubber, timber, aluminum, steel, automobile and energy producers, among others.
Packwood said at week's end that he was not discouraged by the committee's votes. He emphasized that any system of writing off business investments could be called arbitrary.
Despite the compromises, the committee eliminated the investment credit, the largest single tax subsidy to business investment, and was moving toward shifting more than $100 billion of the tax burden from individuals to corporations by 1991. The substitute depreciation plan reduced that increase by $10 billion in revenue, a small amount compared to the total dollars involved.
Moreover, the Finance Committee chairman has said that any bill cutting individual tax rates to a maximum 35 percent and removing from the rolls millions of poor families qualifies as tax reform. "You can never have a perfect law," Packwood said. Whether Packwood and the committee can meet this definition of tax reform remained unclear. To do so without increasing the deficit, a condition laid down by Reagan, they would likely have to settle for a smaller cut in the corporate tax rate or crack down on some of the business benefits they have so far moved to protect, according to a range of tax policy experts.
Packwood's effort to raise $75 billion by effectively increasing excise taxes appeared destined for failure last week, following studies showing the biggest burden would fall on those least able to pay.
Reagan has not commented on the Senate's action. At a White House news conference last week, he harkened back to his original proposal for simplicity in the tax system, a goal that White House chief of staff Donald T. Regan had publicly declared out of reach earlier in the week.
"The revenue they've lost so far is an indication that presidential intervention is going to be needed, if not divine intervention," said the Urban Institute's Minarik.