The Treasury Department, in a qualified endorsement of major elements of Senate Finance Committee Chairman Bob Packwood's tax proposals, said yesterday it could support excise tax increases on alcohol, tobacco, gasoline and other goods and services.
Assistant Treasury Secretary J. Roger Mentz said in testimony to the committee, however, that the administration would not support any excise tax increase that would boost the overall tax burden on the public and corporations.
As part of his proposed rewrite of the tax code, Packwood, an Oregon Republican, has suggested that companies be denied an income tax deduction for the excise taxes and tariffs they pay, and that federal excise taxes be linked to inflation.
"The administration could support excise tax and related tax proposals as part of a revenue-neutral tax reform bill, provided that a justification exists for increasing the level of the particular tax," Mentz said, adding that the administration preferred direct increases in excise taxes to denying the deduction.
Mentz's remarks appeared to contradict President Reagan's opposition to new taxes. But he said any excise tax increase would gain administration support only if it was used to help produce a tax revision bill that meets Reagan's criteria of lower rates, business tax incentives and no increase or decrease in projected tax revenue.
Mentz was criticized by Finance Committee members who pointed out that Reagan favors lower income tax rates, which give a larger dollar tax cut to those in the higher income brackets, but supports higher flat taxes, which impose the same dollar cost on rich and poor alike.
"It will fall hardest on those least able to pay," said Sen. George J. Mitchell (D-Maine).
Mentz was one of the few witnesses to say anything nice about the excise tax proposal, the subject of a daylong hearing Packwood agreed to hold after 11 committee members signed a letter asking for a public airing of the plan.
Representatives of the beer, wine, tobacco, trucking, barge, airline, telephone, importing, automotive and retailing industries said the plan would devastate their industries and that the effects would fall most heavily on lower and middle-income Americans.
Agreeing with that view, the labor-backed Citizens for Tax Justice released a study yesterday saying this approach would penalize the intended beneficiaries of tax overhaul -- lower- and middle-income Americans.
The study, which assumed that businesses would pass along all excise tax increases to consumers, said Packwood's proposals would erode 80 percent of the tax cut that families earning $11,000 or less are projected to gain from tax revision. Middle-income taxpayers would lose about half of their cut, and those earning more than $84,000 would lose about 10 percent, the study said.
"It would be hard to devise a more regressive way to go about raising revenue than the plan promoted by Sen. Packwood," concluded the study, written by Robert S. McIntyre and David Wilhelm.
McIntyre said his request to testify at the hearing was turned down by the Finance Committee because the agenda was too crowded with other witnesses. The AFL-CIO was the only self-proclaimed proconsumer organization to testify, although several antismoking and antialcohol groups spoke in favor of the excise tax proposal.
Despite the lack of administration opposition, the hearing underscored again the difficulty Packwood will have in obtaining approval of the excise tax and tariff portion of his tax proposal. His plan to deny deductibility and restructure the taxes would raise $75 billion over five years, the single biggest chunk of money that Packwood hopes to use to offset the revenue lost from lower corporate and personal tax rates.
The question is whether Packwood can revive the moribund tax-writing process. Packwood called off drafting sessions on Friday, saying "private consultations" with senators were the only hope of producing a tax bill that closes loopholes and reduces rates. In its first 11 days of tax-writing, the committee voted instead to retain existing tax advantages and even to create a few new ones, putting the tax plan in the hole by $29 billion over five years.
Packwood said yesterday that the panel would hold open meetings this week to discuss more provisions of his bill, but that votes probably will not be taken.