The Senate Finance Committee approved an $11.6 billion tax-increase bill 13 to 7 yesterday, capping an extraordinary week of tax writing in both houses of Congress.
In a few intense days, Democrats on the House Ways and Means Committee and those on the Senate Finance panel crafted a set of tax hikes that would have small impact on lower-income Americans but would hit a variety of well-off investors and businesses. In the process, tax writers in both houses also managed to carve out dozens of special benefits for constituents.
President Reagan has promised to veto either the House or Senate tax bills, which are expected to come to the floors of their respective chambers during the next two weeks as part of a large package of spending cuts and miscellaneous legislation.
Finance Committee Chairman Lloyd Bentsen (D-Tex.) reminded members that the alternative to a deficit-reduction package is automatic spending cuts, which he said would be "disastrous."
Like the House version, the Senate bill was drafted entirely by committee Democrats meeting in private. Nonetheless, two Republicans -- Sens. John H. Chafee (R.I.) and John Heinz (Pa.) -- joined the panel's 11 Democrats in voting for the bill.
Other Republicans voted against the tax plan because, they said, they wanted proof that Congress would produce commensurate spending cuts to go along with the tax hikes. The Gramm-Rudman-Hollings budget law calls for $23 billion in deficit reduction for fiscal 1988.
"We have to decide if we want to pass a package knowing full well it will be vetoed and sustained," said the committee's ranking Republican, Sen. Bob Packwood (Ore.), who called for Reagan to negotiate a deficit-reduction package with congressional leaders.
Neither the House nor the Senate committee bills would raise excise taxes or alter the income-tax rates on individuals and corporations that were cut in the 1986 tax-revision law. But the measures would affect individual taxpayers in several ways.
Both bills would extend the 3 percent tax on telephone use that is scheduled to expire at the end of the year. The Senate bill would remove the salary ceiling on the 1.45 percent Medicare payroll tax on employers and employes. The current ceiling is $43,800.
The House legislation includes several limits on deductions for interest on home loans. It would prohibit the interest deduction for mortgage amounts in excess of $1 million and limit deductions on the interest on home-equity loans to $100,000 for married taxpayers and $60,000 for single taxpayers. It also would prohibit designating boats and mobile homes as second homes for purposes of deducting interest on loans used to buy them.
To the end, senators were inserting their own wish lists into the legislation. Minutes before the final vote, Sen. Daniel Patrick Moynihan (D-N.Y.) persuaded the committee to accept an amendment to reverse a provision of the 1986 law that treats computer programmers as regular employes whose wages are withheld from paychecks, rather than as independent contractors who pay taxes on a quarterly basis. A compromise 10 percent withholding tax would be imposed.
As Chafee proposed an amendment benefiting fishing cooperatives, he noted that it would cost the federal Treasury only $1 million. But, he added, its acceptance did not mean he was promising to vote for the entire bill. "It would take more than $1 million . . . , " he said, his voice trailing off as the roomful of lobbyists, reporters and legislators burst into laughter.
Another Chafee proposal, to double the federal cigarette tax, to 32 cents a pack, rather than extend the telephone tax, was defeated. Heinz won approval of several minor health-related amendments.