Democrats on the Senate Finance Committee yesterday supported increasing Medicare payroll taxes on the 8 million Americans whose annual wages exceed $43,800 as they completed preliminary work on an $11.5 billion deficit-reducing tax package.
If the Democrats' provision becomes law, it would be the first time that a Social Security tax -- of which the Medicare levy is a portion -- was not subject to a salary ceiling.
The tax package approved by the Senate Finance Committee Democrats is scheduled for a full committee vote today. It would raise about half what is needed to reduce the projected fiscal 1988 deficit by the mandated $23 billion. The rest is to come from reductions in federal spending.
If Congress and the president do not agree on a way to shrink the deficit, automatic cuts of $23 billion will cut across many types of federal spending.
The Democrats' Medicare decision would subject all salary income to the 1.45 percent tax that finances the health-care trust fund. Now -- like other Social Security payroll taxes which total 7.15 percent -- it is levied on the first $43,800 of salary. The salary cap rises each year in relation to inflation. The tax is levied on employers and employes alike.
The senators' action came as the House Ways and Means Committee gave final approval to its tax package after a day of negotiating exemptions and exceptions.
President Reagan vowed to veto either chamber's tax plan.
Calling the tax bills "an exercise in fiscal irresponsibility," Reagan said, "If reason should fail, if Congress should actually pass a tax hike, my answer will be simply this: Veto."
By adopting the Medicare provision, the Senate Finance Committee Democrats designed a bill that diverges even further from the House version, increasing the difficulty of striking a compromise if both measures are approved by their respective houses.
Although each bill would raise roughly $12 billion, only $6 billion comes from the same sources.
Senators agreed to at least two provisions likely to meet opposition from House tax writers. The bill would repeal the windfall profits tax on oil companies and includes Arkansas Democratic Sen. David H. Pryor's so-called taxpayer bill of rights that would restrict Internal Revenue Service in certain types of investigations.
Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) expressed confidence that his plan will secure the votes of 11 all Democrats on the panel. All nine Republicans are considered likely to vote against it.
"I have full Democratic support, 100 percent, every member," Bentsen said.
Democrats pointed out that removing the Medicare cap, an action that would raise $2.2 billion in fiscal 1988 and $6 billion a year after that, would affect only higher-income workers. Initial reaction from Ways and Means members indicated that the Medicare provision, which is not part of the House tax bill, might be acceptable.
"It makes a lot of sense to me. It's sure something I could buy," said Rep. Charles B. Rangel (D-N.Y.), a member of the Ways and Means Committee.
Ways and Means Democrats made no major changes in their tax legislation before submitting it to the full committee, which approved it 23 to 13 on a party-line vote.
Republicans on the House and Senate tax-writing committees have declined to participate in the drafting sessions.
Details of the House plan released yesterday include a host of tax-cutting provisions inserted in part to secure members' support.
The House bill would produce a net revenue gain of $12 billion -- raising taxes $14.3 billion but granting $2.3 billion of tax breaks. The bill also includes a welfare-overhaul package that costs $1.7 billion.
Among the special provisions:
An 80 percent tax deduction for donations to college sports clubs that provide tickets to donors. The provision, also included in the Senate plan, replaces a similar break in last year's tax revision that benefited only the University of Texas and Louisiana State University.
Repeal of the 1986 provision that requires that authors deduct expenses over several years rather than in the year they are incurred.
Repeal of a provision in the 1986 law requiring investors in mutual funds to pay taxes on some of the operating expenses of the fund as if the expenses were income. Democratic senators agreed yesterday to the provision's repeal.
The House bill also includes a surprising twist in its limitations on interest deductions on home-equity loans. Previously, the plan's deduction limit for interest on non-mortgage loans secured by a home was $100,000. In the version released yesterday, the limit was $100,000 for married taxpayers -- and $60,000 for single taxpayers.