House and Senate negotiators tentatively agreed yesterday that their compromise tax-revision bill will include rates of 15 percent and 27 percent for individuals and 33 percent for corporations.
The leaders of the conference committee -- House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) and Senate Finance Committee Chairman Bob Packwood (R-Ore.) -- said the tentative decision marked significant progress and would help determine how the rest of the measure will be shaped.
The rates, drawn from the Senate-passed bill, are subject to change if members of the conference seeking to reconcile the Senate and House bills decide to include more deductions.
"If members want to make any changes, there is a penalty that has to be paid" by raising rates or closing more loopholes, Rostenkowski said. The House bill proposed four rates for individuals, with a top rate of 38 percent, and a corporate rate of 36 percent, 10 points lower than the current rate for business.
Packwood said he and Rostenkowski also had agreed on "16 to 18" other elements of a tax compromise, subject to approval of the conference.
One element agreed to, Packwood said, was the Senate proposal to increase the personal exemption to $1,900 in 1987 and $2,000 in 1988 for almost all taxpayers.
The House bill would provide a $2,000 exemption for taxpayers who use the standard deduction and $1,500 for those who itemize. The personal exemption this year is $1,080.
Others said it was likely the House conferees would accept the Senate's proposed increases in the standard deduction, which are larger than those in the House bill.
Lawmakers also have predicted that the eventual tax bill would retain the full deduction for Individual Retirement Accounts (IRA) for taxpayers earning less than $50,000 a year, while restricting the deduction for those in higher income brackets.
No formal votes have been taken and all yesterday's meetings occurred behind closed doors. The conferees will hold a rare Saturday session today, also in private, as they attempt to complete the bill by mid-August.
Despite the conferees' desire to start with the Senate's rates, many issues remain to be settled. Senate negotiators, for example, must find $21 billion in additional taxes over six years to prevent their version -- the basis for the compromise -- from increasing the federal budget deficit.
Senate conferees debated a long list of possible revenue-raisers that included proposals affecting corporations and individuals. The only provision ruled sacrosanct, sources said, was the Senate's system of writeoffs for business investment, which are more than $25 billion more generous than the House's proposals.
"We've got to pick up a bunch of revenue," said Sen. Lloyd Bentsen (D-Tex.). "We haven't resolved that at all."
The meetings between 11 senators and 11 representatives appeared to be an informal process designed to reach a consensus without tying either house to a firm position. Conferees said discussions were more conversational than specific.
"It's like a genuine love affair that gradually matures," Packwood said. "If you try to force it, it falls apart."
Said Sen. Bill Bradley (D-N.J.), "We can't take votes in there; what happens is we're taking temperatures."
The push for informal agreements, which came after three days of open sessions at which no progress was made, was marked by some dissent among House members. Several Democratic conferees told Rostenkowski they were worried that levying only two tax rates on individuals, the top one nearly half of the current top rate of 50 percent, would give too much tax relief to the wealthy.
"There are several of us, including myself, who still believe we ought to have a third higher rate," said Rep. Donald J. Pease (D-Ohio).
Besides finding $21 billion to keep the Senate bill "revenue neutral," conferees also are expected to need revenue to pay for the IRA restoration and, perhaps, for making the bill's tax-rate cuts start the first day the law takes effect, rather than six months after deductions are restricted. Such a shift would cost about $29 billion.
It would take another $5 billion to make the Senate bill's tax cuts as generous to lower- and middle-income payers as the House bill, as House conferees are expected to insist.