Despite widespread public applause for the sweeping tax-overhaul plan the Senate will take up in two weeks, Reagan administration officials are insisting the proposal has obstacles to overcome, including the sticky political issue of raising more revenue than current law would during the first year.
Treasury Secretary James A. Baker III yesterday said, "You ought not, in my opinion, simply think this is a done deal, because it isn't." Not only are numerous amendments to restore deductions expected on the Senate floor, but the bill's first-year revenue gain could cause political problems for the administration.
Baker, at a luncheon with Washington Post editors and reporters, said he hopes that the legislation's initial multibillion-dollar surplus -- over five years the package would bring in the same amount of revenue as existing law -- can be "smoothed out" as it moves through Congress.
Administration officials are worried about the initial rise because President Reagan has sworn to oppose tax increases. And they are afraid that feature could undermine the procedural discipline under which the tax bill will be considered on the Senate floor next month.
The size of the surplus is not yet known, although one administration official last week suggested it would be more than $20 billion. That figure was quickly repudiated. Baker insisted there is no accurate estimate of the first-year numbers, but said he hopes the surplus could be reduced through changes in "transition rules" being drafted to ease taxpayers into the new system.
Senate Finance Committee chief of staff William M. Diefenderfer, agreeing that the first-year "bump" in revenue should be reduced, said yesterday that it could be tackled by a House-Senate conference committee after the measure has passed the Senate.
Aside from the surplus, Baker indicated that the administration will not seek to change provisions of the legislation that run contrary to Reagan's tax proposal. The Finance Committee bill, for example, would end preferential treatment for capital gains and would put new restrictions on tax-deferred Individual Retirement Accounts, two tax breaks Reagan has proposed expanding.
"Despite the fact that it eliminates the capital gains differential, that it eliminates to some extent the IRA provisions, all of which he had in his bill, he's saying: 'Let's move it, let's move it as a package; I want to see this thing go,' " Baker said.
The administration strategy, as described by administration officials this week, is emerging as an effort to put aside substantive problems with the tax bill until the measure has passed the Senate and is before a conference committee. The bill passed last year by the House would preserve the full deduction for IRAs and includes lower rates for capital gains, although it includes other provisions the administration opposes.
It may take a "core group" of senators opposed to all amendments to keep the delicately balanced package intact on the floor, a senior administration official said. Finance Committee Chairman Bob Packwood (R-Ore.) used such a group to push the radical tax plan through a skittish committee, finally gaining a unanimous vote for passage in the 20-member panel.
So far, however, the core group of seven Finance members has expanded by two senators, far from the number that will be needed to block planned floor amendments on IRAs, capital gains and continuation of current deductions for state and local sales taxes and business meals, among others. Some of those amendments, in fact, will be offered by members of the original core group.
Diefenderfer said he expects as many as 30 "strong supporters" to form a solid core opposing most amendments, although membership of the coalition could shift depending on the nature of the amendment.
The oral jousting over the first-year surplus erupted this week after Senate Majority Leader Robert J. Dole (R-Kan.) said he would like the funds to be used to meet the deficit-reducing targets of the budget resolution; White House officials responded that president opposes using new taxes to cut the deficit.
Baker said yesterday that the administration's position is that deficits should be reduced by cutting spending, not by increasing revenue. He added, however, that the administration may have to accept some revenue increase in the first year if the bill is "revenue-neutral" over five years.
"Let's assume the Finance Committee package passes intact and that's the final bill," Baker said. "The president has said he likes it, he thinks it contains substantial elements of reform and he would sign it. Then the quesiton of whether you count that revenue toward the budget would be up to the legislative branch."