Senators Seek to Limit Business Tax Increases : Plan Would Protect Heavy Industry, Oil, Mining, Timber, Hold Hike to $120 Billion Over 6 Years

Senate tax negotiators began working Tuesday on a plan that would protect heavy industry, along with oil, mining and timber firms, against the steeper business taxes proposed by House Democrats.

As negotiations on the final form of a tax revision bill continued, Senate Finance Committee Chairman Bob Packwood (R-Ore.) said he is developing a plan that would limit the increase in corporate taxes over a six-year period to $120 billion, well short of the House proposal to boost corporate taxes by $142 billion over the same period.

How far to go in increasing corporate taxes--and who should bear the burden--is at the heart of the tax negotiations, because the money raised from business would be used to make up revenue lost to the federal Treasury by tax cuts for individuals. Although Senate negotiators indicated a willingness to bargain over a detailed House proposal that they at first had scorned, they remained most concerned about higher taxes on basic industries.

Aid Against Imports

“We’re not worried about McDonald’s and things like that,” said Sen. John H. Chafee (R-R.I.). Instead, he said, the Senate negotiators want to help “those who are in hand-to-hand combat with the Japanese” over low-cost imports.

Packwood, although vowing to hold the line on the business tax increase, said that he agrees with some of the suggested “loophole closers” in the House proposals, including a plan to target individual retirement accounts primarily to middle-income families.

But Packwood vowed to stick with the Senate proposal to drastically curtail the state sales tax deduction, a move that would wipe it out for most taxpayers.

Tax negotiators returned to the bargaining table after more than a week. Calling the two-hour meeting “very fruitful” and “worthwhile,” House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) said negotiators are beginning to treat each side’s proposals more seriously.

Gap Narrows

On several volatile issues, the gap between the two sides appeared to be narrowing. Packwood, for instance, called the House IRA proposal “not bad.”

He indicated that he might propose allowing higher-income individuals to continue to defer taxes on the funds in their IRA accounts, even though those who are covered by a company pension plan would no longer receive a tax deduction for their contributions.

The House proposal would fully preserve IRAs for all families and individuals without a pension plan, but those with family incomes of more than $50,000 ($35,000 for singles) who are covered by a pension would no longer be entitled to deduct contributions to an IRA.

Families with incomes of less than $40,000 and singles with less than $25,000 would be entitled to deduct a full IRA contribution of up to $2,000 per worker, even if they are covered by a company-sponsored pension. For those families with incomes between $40,000 and $50,000 ($25,000 to $35,000 for singles), the deduction for IRA contributions would be phased out.

Existing Accounts

Those who would lose the deduction for IRA contributions could continue to defer taxes on their existing accounts.

At this stage in the negotiations, Packwood is being squeezed from both sides. He hopes to preserve the low rates in the Senate bill, which would set a nominal top rate of 27% for individuals and 33% for corporations.

But House negotiators have been suggesting for several days that the only way to preserve popular individual and business tax preferences would be to slightly boost the maximum tax rates, and recently even Packwood’s own Senate bargainers have begun to hint privately that they would accept modestly higher rates to avoid having to impose any further curbs on business tax write-offs.

Packwood appeared to be wavering Tuesday on the rates issue, but he acknowledged that he has little room to maneuver on increasing the business tax burden.

“My conferees would be very, very averse to going beyond $120 billion,” he said. “They’d rather just agree to disagree.”