Senate Finance Committee Chairman Bob Packwood (R-Ore.) announced yesterday that his panel has reached a "consensus" in favor of his tax-overhaul package cutting individual tax rates by half and corporate rates by one-third. He said the committee will begin public debate on the plan Monday.
"I hope there is a majority for it," Packwood said, adding: "It is simple. It does remove immense deductions. It does remove immense tax shelters."
Packwood said the plan, to be unveiled Monday, would remove 6 million low-income Americans from the tax rolls, eliminate a wide range of individual deductions in exchange for lowering the maximum rate to 27 percent and move 80 percent of individual taxpayers into a new, bottom bracket of 15 percent.
However, significant portions of the plan remain in rough form -- including controversial proposals to increase taxes on certain businesses and to crack down on tax shelters -- and some committee members questioned whether the consensus would hold once details were released.
"Down home we pour our coffee in the saucer to let it cool before we drink it," said Sen. David H. Pryor (D-Ark.). "I think we need to let this cool for a while and see exactly what's in this legislation."
Packwood, who needs 11 votes in the committee to advance the proposal to the Senate floor, was flanked at his announcement by three Democrats and three Republicans: Sens. Bill Bradley (D-N.J.), Daniel Patrick Moynihan (D-N.Y.), George J. Mitchell (D-Maine), John C. Danforth (R-Mo.), David F. Durenberger (R-Minn.) and John H. Chafee (R-R.I.).
Packwood said Majority Leader Robert J. Dole (R-Kan.) also supports his package, but Dole said later: "It is fair to say I agree in principle with the chairman's latest proposal. However, there are still a number of items that merit attention . . . . If these questions can be worked out, then the chairman will have my full support."
The coalition supporting the package, according to Packwood and others, will require that the bill have a 27 percent maximum individual tax rate, a $2,000 personal exemption, a standard deduction of roughly $5,300 for couples, a distribution of most benefits to lower- and middle-income families and a shift of about $100 billion in taxes from individuals to corporations.
To keep the largest tax cut at the lower levels, the committee will have to endorse the two provisions drawing the heaviest fire: repealing the favorable tax rate for capital gains and preventing investors in tax shelters from wiping out regular income with paper losses from those shelters.
The Finance Committee staff is to work this weekend on the details. Senior committee aides said the plan would increase total taxes on corporations by $93 billion to $103 billion, depending on how much money is needed to remove low-income families from the rolls while bringing families of four with $28,500 of taxable income (about $40,000 in wage income) into the 15 percent bracket.
Most existing corporate tax benefits would remain, with the major exception of the $38 billion-a-year investment tax credit. To raise about $100 billion more from businesses, the panel plans a new, tough minimum tax on firms that now pay little or no tax and a variety of other possible measures, including an 80 percent limit on deductions for business meals and entertainment.
A senior staff member said the committee plan would not raise excise taxes -- directly or indirectly -- as originally planned. He also said that state and local income, real and personal property taxes would remain fully deductible, as opposed to an earlier plan to limit the deduction in the top bracket.
State and local sales taxes would not be deductible, however, and the widely used medical deduction would be limited to those expenses exceeding 10 percent of adjusted gross income (the current floor is 5 percent). Individual Retirement Accounts would be deductible only for people with no other pension coverage, meaning for example that federal workers in U.S. pension plans would be excluded.
In another key compromise, which apparently won the support of Durenberger, the package would not apply the minimum tax to income from tax-exempt bonds as originally planned. Packwood had resisted this compromise and a senior aide said: "You will still get scores of millionaires who will pay no tax because they're junked up with muncipals, but we can't win that vote."
Other changes include a plan to broaden depreciation benefits by as much as $4 billion beyond the $13 billion in benefits added to Packwood's original proposal.