Senate tax overhaul negotiators agreed yesterday to submit new revenue-raising proposals to their House counterparts, after House members rejected more than half the Senate's $26 billion worth of suggestions.
The revenue-raisers are needed to keep the Senate tax-revision bill from increasing the federal deficit. The bill's deep reductions in tax rates, combined with its retention of some individual and corporate deductions, would provide $26 billion less to the government than the current tax system.
Senate Finance Committee Chairman Bob Packwood (R-Ore.) said the list, which could be proposed as early as today, also would include enough revenue -- about $4 billion -- to pay for some other deductions the Senate wants to restore.
Among them: the deduction for miscellaneous business expenses and a larger deduction for medical costs.
After a two-hour meeting of the 22 members of the House-Senate conference committee that is attempting to reconcile the two chambers' versions of tax overhaul, conferees indicated things were going less than smoothly.
"There is absolutely no consensus at this point," said Rep. Bill Archer (R-Tex.).
"We're in a fluid state," said Sen. John C. Danforth (R-Mo.).
Packwood and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) have said they would like the conference to finish work by mid-August, when Congress is scheduled to depart for its summer recess.
Packwood yesterday said, "I just take it a day at a time."
Every revenue-raising item that the Senate will propose this time, Packwood said, will be drawn from the House tax bill, which would raise corporate taxes $85 billion more than the Senate bill over the next six years.
House conferees objected to the first list, presented Saturday, because eight of its 16 items, or about $14 billion of the $26 billion in new revenue, were tax provisions that are not part of either tax bill.
They included proposals to close a Senate loophole permitting unlimited borrowing against a home, with deductible interest, to get around the repeal of the deduction for non-mortgage interest; new taxes on large credit unions, and a $5,000 limit on annual contributions to tax-deferred 401(k) plans.
Rostenkowski told Packwood that House rules would require a special waiver to consider those items, which were were out of the "scope" of the conference.
"It's realism time at the OK Corral," said Rep. Donald J. Pease (D-Ohio). "Our basic criterion is, the Senate came up short; the Senate's got to find $26 billion."
Even if the House agrees to the Senate's new proposal, the conferees will still have to find another $29 billion in new revenue if they decide to move up the date the lower tax rates would take effect. Both the House and Senate approved bills that limit deductions six months before rates are reduced.
There is a general sense among the conferees that they would work together to find that $29 billion, if the change is made.
Packwood did not elaborate on the items from the House bill that he would pick to raise the disputed $26 billion, plus the $4 billion needed to restore the miscellaneous and medical deductions.
However, he said that cutbacks in depreciation -- the giant system by which businesses write off the cost of aging assets -- were a candidate. Treasury Secretary James A. Baker III has said the administration strongly opposes making the Senate depreciation scheme less generous to companies.
About $21 billion of the money is needed because new economic estimates showed that the Senate bill was that much in deficit over six years. Another $5 billion is needed to make the Senate's tax cuts as large for lower- and middle-income taxpayers as the House bill provides.