House and Senate tax negotiators shifted out of neutral yesterday, jolted by new revenue projections showing that the Senate version of tax revision would increase the federal deficit and the House bill would reduce it.
Senate Finance Committee Chairman Bob Packwood (R-Ore.) and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) agreed to try to work out the outlines of a compromise tax bill starting as early as today, then lay the proposal before other members of the conference committee that is attempting to reconcile the two plans.
During a private session between the two chairmen, Packwood promised to find ways to make up a $20 billion shortfall in his bill and target the measure's tax cuts more to the middle class. Rostenkowski said he expects the Senate bill will be used as the starting point to reach a compromise.
"I think there is real evidence of progress," Rostenkowski said.
Both men said they hope to begin by setting the top tax rate for individuals at or near the Senate's 27 percent, nearly halving the current top rate of 50 percent. And Rostenkowski indicated that conferees are likely to retain the deduction for Individual Retirement Accounts for taxpayers earning less than $50,000 per year while limiting the deduction for wealthier taxpayers.
The revised estimates, released during a closed-door meeting of the conference committee, also showed that the recalculated Senate tax cut for middle-income taxpayers would be larger than first thought. Even though it would still be smaller than the reduction in the House bill, the change undercut the strongest House objection to the Senate bill.
Members of the conference committee took no formal action, but several said the new figures answered House contentions the Senate bill would not give enough tax relief to those earning $20,000 to $40,000 a year. Generally, participants said, the estimates generated a more positive atmosphere in the private meeting than there had been during the three previous days of open sessions.
"I think it's going to get us down to work," said Senate Majority Leader Robert J. Dole (R-Kan.), a conferee. "We've had all the campaign speeches and pressure from all the groups in America. Now it's time to go in there and take the best of the House bill and the best of the Senate bill."
According to the new estimates by the nonpartisan Joint Committee on Taxation, the Senate's tax-revision bill would bring in $21.2 billion less from 1986 to 1991 than the current tax code. The House measure, which committee staff members reestimated using the same dates of implementation as the Senate plan, would raise revenue by $38.3 billion over the same period. All proponents of tax overhaul agree the final bill should bring in the same amount as current law.
Under the new estimates, the Senate bill would cut the taxes of taxpayers with incomes of $30,000 to $40,000 per year by 7.2 percent, compared to 9.2 percent under the House bill. Earlier figures for the Senate bill had indicated the cut for that group would be 5 percent.
"It's generally felt the middle class does better in the Senate bill than we had thought they did," said Rep. Charles B. Rangel (D-N.Y.).
The larger Senate tax cut for taxpayers making less than $50,000 came about for two reasons:Economic forecasts predicting lower-than-expected inflation meant the scheduled increase of the personal exemption from $1,900 in 1987 to $2,000 in 1988 is of more value to those taxpayers.Data indicating that IRAs are more widely used among wealthy taxpayers than had been thought, so that the Senate's cut in that deduction would hurt rich taxpayers more on average and hurt the poor less.
Rangel and others said the conferees are now more likely to restore IRAs for middle-income earners while limiting them for people in the higher income brackets.
Rostenkowski and Packwood said they plan to hold an unusual Saturday session of the committee