Senate leaders embraced a surprise compromise yesterday that would partially preserve sales tax deductions in their tax-overhaul bill, defusing the only remaining threat to the measure as senators proposed last-minute tax breaks for everything from organ transplants to Alaskan reindeer.
Treasury Secretary James A. Baker III and Deputy Secretary Richard G. Darman came to the Capitol to press senators to bring the bill to a final vote, with some apparent success. Senate Majority Leader Robert J. Dole (R-Kan.) announced yesterday evening that Republican and Democratic leaders had worked out an agreement setting a final vote on the package for Tuesday afternoon.
Between now and then, the Senate must dispose of 64 amendments, almost all of them minor, covering tax benefits for computer software, business conventions, potash mines, mineworkers' pensions, hydroelectric power and parimutuel betting, among other topics.
Dole and Finance Committee Chairman Bob Packwood (R-Ore.) -- who have successfully opposed virtually all amendments -- agreed to the sales tax compromise after senators seeking to save deductions for sales taxes and Individual Retirement Accounts appeared to be on the verge of joining forces to challenge the legislation.
The amendment passed on a voice vote.
"This yanked the rug out from under the IRA coalition," said Sen. Russell B. Long (D-La.), the senior Democrat on the Finance Committee.
The compromise, proposed by a group of senators from states with high sales taxes, would allow people who pay more in sales taxes than income taxes to deduct 60 percent of the excess.
In the six states that have no income tax, taxpayers thus could deduct 60 percent of all state and local sales taxes.
"We have corrected this gross inequity without doing damage to any portion of this bill or elements which many so rightly wish to protect," said Sen. Daniel J. Evans (R-Wash.), who proposed the compromise along with Sens. Slade Gorton (R-Wash.), Phil Gramm (R-Tex.) and others. Washington and Texas are among the states with no income tax.
A senator close to Packwood said Gorton and Evans had vowed to oppose all major amendments in return for his support, but the two Washington senators said later that no deal had been struck. They said that Packwood, whose state has no sales tax, agreed that it was unfair to repeal state sales tax deductions while retaining those for income and property taxes.
Packwood also denied that the amendment was the result of a deal, adding that he did not expect it to lead to more major proposals to alter the package.
Nonetheless, the amendment represented a significant compromise for Packwood, who in floor debate Wednesday called the sales tax "the most regressive tax we probably have in this nation" and defended the Finance Committee's repeal of the sales tax deduction "because we did not want to encourage this regressive tax."
Packwood, Dole and other leading supporters of the tax bill have firmly resisted all changes on the theory that shifting the delicate balance of deductions repealed and retained could cause the bill to unravel.
In this case, however, the supporters said the proposal did not represent a threat to the bill's basic outlines because it did not alter the rate structure, which promises a maximum 27 percent rate for individuals.
The $2 billion cost of the change would be financed over five years by toughening enforcement -- making taxpayers report their dependents' Social Security numbers and closing a loophole that allows securities traders to take "straddles," or claim losses without reporting income until the next year.
The Senate approved amendments giving farmers the same tax breaks the bill now provides for steel companies and requiring that title agents report the price of house sales to the Internal Revenue Service for tax purposes. And senators endorsed, 94 to 1, a nonbinding resolution demanding that the tax-revision law give maximum tax relief to the middle class.
Some amendments were withdrawn -- Sen. John H. Chafee (R-R.I.) agreed not to offer a proposal to deny tax benefits to developers of real estate on barrier islands -- but others pressed their cases. Sen. Tom Harkin (D-Iowa), for example, took 1 hour and 11 minutes to debate a proposal that would reduce capital-gains taxes for farmers over the age of 55. It failed, 60 to 35.