High noon over taxes in Congress

President Reagan's battle with the Democrats on taxes -- the second major peg in his economic program -- now looms as one of the rawest tests of political power Washington has seen in a decade.

Democrats in the House Ways and Means Committee finished their tax package this week, and the face-off with the White House and Republicans will occur Wednesday (July 29) on the House floor.

In its simplest terms, the tax fight is "Ronny vs. Rosty." It pits Chicago Democrat Dan Rostenkowski -- the new Ways And Means chairman, a protege of the tough late mayor of Chicago, Richard J. Daley -- against the President's men.

A victory for Congressman Rostenkowski could mean the debut of a new legendary congressional power broker. For the Republicans, it would mean the first break in the momentum of Reagan's economic program juggernaut.

The vote outcome looks very, very close. The White House says it could lose this one. House Republicans have unleashed a $400,000 radio-television blitz for this weekend to help their cause. White House chief of staff James Baker III suggested in a breakfast meeting with reporters that a presidential TV appeal on taxes, while it might not have the winning impact of the earlier televised address to Congress on the budget, remains an option.

A Democratic victory could prove costly to that party, many Democrats warn. If the economy fails to respond to the White House's targets for next year, the Republicans will try to hold the Democrats responsible.

The Democrats' tax package already represents a shift in recent party tax policy from helping low and middle-income individuals to an emphasis on aiding business and investment.

In economic terms, experts say there is little from which to choose between the emerging Democratic and Republican tax approaches, so far as their actual stimulative impact on the economy can be judged.

It all comes down to a classic political power struggle, both sides agree, in which the ability to win votes will prove decisive.

Many Democrats think Mr. Rostenkowski has been too cynically pragmatic in the deals he made to fashion a winning Democratic bill.

"The Democrats are really hurting themselves," argues Jay Angoff, lawyer for the Tax Reform Research Group. "Democrats are calling it a Democratic proposal, but it's really a Republican tax bill."

White House chief of staff Baker says half kiddingly that the Republicans could "take their [the Democrats'] package, declare victory, and go home."

Rep. John H. Rousselot (R) of California, a Ways and Means Committee member, asserts, "We're going to win." The Republicans have been hastening to "fine tune" a GOP version in the House to compete with the Democrats next week on the floor. As a fallback, if the Republicans lose to the Rostenkowski package, they could offer the Senate's GOP-drawn tax bill in a "motion to recommit" the issue on the House floor.

"I think we can win," similarly claims Rep. Don J. Pease (D) of Ohio, a Ways and Means member and a member of the Democratic whip ranks. "But it may be Pyrrhic. A lot of Democrats -- including members of the Ways and Means Committee -- are not proud of the bill."

Many Democrats wanted to hold the line for a one-year tax cut, arguing for fiscal prudence. But Rostenkowski moved first to a two-year bill, and then accepted the President's three-year package, making the third- year tax cut hinge on reaching the White House's economic objectives.

Apart from a personal victory for Rostenkowski, a Democratic win next week would "dent the veneer of Reagan invincibility," Mr. Pease says. And it would mean "adopting a bill marginallym more Democratic in philosophy, but still business-oriented."

The Democrats assume they will get no help from Republican House members. They lost 63 party members to the President's side on the first budget vote. They gained 34 of them back for the second budget "reconciliation" vote. They are focusing on keeping the 34, plus reducing the 29 stray Democrats -- mostly Southern conservatives -- to 20.

The horse-trading for the final promised tax votes was costly. To get them, Rostenkowski offered $7.1 billion over six years in tax breaks for oil-producing states.

Defending the maneuver, Pease -- a liberal -- says, "As Democrats, if we're going to rule as a party around here [in the House], we can't get by without the Louisiana, Texas, Oklahoma group. That means you have to take care of the oil people."

The oil-state bidding was the climax in the tax bill maneuvering, says Mr. Angoff of the Tax Reform Research Group.

"The Democrats would not have done that unless they got enough Southern Democrats to sign in blood that they'd vote for the Democratic proposal."

But other special-interest tax breaks were also part of the marathon Ways and Means negotiations, including a $270,000 special stock option rule to benefit a family-owned California winery.

Partly as a joke, Rep. Fortney H. Stark (D) of California, one of the more liberal committee members, proposed substituting the President's original tax proposal -- the Kemp-Roth plan plus the 10-5-3 business depreciation formula -- because it would be $17 billion less expensive and free of the special- interest concessions padding both the GOP and Democratic plans. It was voted down.

"Rostenkowski did a tremendous job in moving the committee and getting all these votes from special-interest groups," Angoff says. "Nobody thought it would be out this quickly."

Apart from the oil-state concessions, Rostenkowski bargained for keeping a "commodity straddle" tax loophole open for professional commodity traders.