Chances that the Senate Finance Committee will produce a tax-revision bill improved yesterday as senators reacted positively to another set of proposals by Chairman Bob Packwood (R-Ore.).
Packwood laid out tax-package options that would cut the top personal tax rate to either 26 percent or 27 percent. And the committee tentatively agreed in a private meeting to measures that would raise corporate taxes by as much as $60 billion, to help pay for lower individual rates.
More corporate tax increases will be necessary to offset the tax revenue lost due to lower individual tax rates, and no votes on any of the proposals have been taken.
The new options would retain some popular individual tax deductions, such as those for home mortgage interest, charitable contributions and state and local income taxes. The option with a 26 percent top rate, however, would eliminate the deduction for state and local sales and personal-property taxes. Both options would end several other widely used deductions, such as the one for Individual Retirement Accounts.
Senators said that, although the specifics have yet to be decided for both corporations and individuals, the committee has regained momentum. The outlook, they said, is significantly brighter than it was a week and a half ago, when Packwood suspended voting because amendments were bleeding the bill of revenue.
Chances the panel will produce a bill "have gone from zero to 50/50," said Sen. Lloyd Bentsen (D-Tex.). "It is back on track, but there is surely no full head of steam."
Senate Majority Leader Robert J. Dole (R-Kan.), who Monday said tax revision was "hanging by a thread," said yesterday that it is now "hanging by a rope."
Packwood offered the new proposals yesterday after laying out a modified flat-tax plan Thursday that included a top tax rate of 25 percent, half of the current 50 percent top rate. That plan was proposed to jolt the committee out of the direction it had been heading, of preserving numerous tax breaks for business.
Packwood said he may have the panel meet in the evening and this weekend, while momentum is in his favor. Senators may start making "90 percent decisions" in their meeting today, Packwood said.
Packwood's strategy, according to several senators on the committee, appeared to be to reduce individual rates substantially and wipe out many deductions and credits. Meanwhile, he is pushing relatively few changes on the corporate side of the tax code, in order to keep senators from proposing special- interest amendments that would lose federal revenue.
"There will be a lot of current law retained where not much revenue is involved," Bentsen said.
Senators spent the afternoon testing out various proposals to raise corporate taxes. They need to find about $74 billion over five years, plus perhaps $25 billion in higher excise taxes, to offset the revenue lost from cutting individuals' taxes by $95 billion over the same period.
Among the tentative decisions on corporate taxes: to cut the deduction for business meals and entertainment costs from the current 100 percent to 80 percent, for a revenue gain of $6.4 billion; to raise almost $10 billion in new revenues from the life- and property and casualty insurance industries; to raise $27.9 billion from a stiff corporate minimum tax.
The committee also agreed to abandon several proposals Packwood had originally made, including a change in the way banks account for bad debts, a change in accounting procedures for small professional firms and a plan to let companies "sell" their unused investment tax credits back to the government at 65 cents on the dollar.