House negotiators on tax overhaul attempted yesterday to lay political claim to tax cuts for the middle class, a tactic Senate members of the conference greeted with some skepticism.
The legislators took no votes and are not expected to begin important decisions on reconciling their differing versions of tax overhaul until late next week.
Senate Finance Committee Chairman Bob Packwood (R-Ore.) said after yesterday's session that he would like the conference to act next week on what he termed the four most important issues: tax rates, the amount of the tax increase on business, which deductions will be restored with the money from that increase and whether the House will accept a sweeping Senate crackdown on tax shelters.
However, House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), who is chairman of the conference, plans to begin with provisions affecting individual taxpayers. Only after that will it be clear how large a tax increase on business will be necessary, Rostenkowski aides suggested.
The debate over rates in the conference reflects a fundamental disagreement between the House, whose representatives say their primary goal is to give tax relief to middle-income earners, and the Senate, which wants to preserve its top rate for individuals of 27 percent. The top rate in the House bill is 38 percent; the current top tax rate for individuals is 50 percent.
House members said the top tax rate in the Senate bill is not really 27 percent. Because the bill also would phase out the benefits of the personal exemption and the lowest bracket for high-income taxpayers, they said, the actual rate can be more than 32 percent.
Treasury Secretary James A. Baker III asked the conferees to preserve the Senate's version of depreciation, by which companies deduct the loss in value of aging equipment and buildings. The Senate depreciation provisions are more generous than those in the House bill by roughly $25 billion over five years.
"We've never suggested we were not in favor of increasing the percentage cuts to the middle-income group as much as we can," Baker said. "But we've also raised the question, how do you pay for it? . . . One thing you don't do is diminish the Senate depreciation provisions."
Rep. Richard A. Gephardt (D-Mo.) asked: "What are we going to do with corporate taxes and the taxes of wealthy individuals to move more savings to the middle class?"
The ensuing debate prompted Sen. John H. Chafee (R-R.I.) to say, "The purpose of the exercise from the beginning wasn't to give everybody a tax cut. It was to take the tax code and make it fairer."
The Senate bill would raise corporate taxes by $100 billion over five years, while the House bill would shift about $160 billion in taxes from individuals to companies.
Packwood pointed out that the House bill would give a larger tax cut to the wealthiest taxpayers -- 5.9 percent for those earning more than $200,000 a year -- than would the Senate version, which would cut their taxes an average 4.7 percent.