Rostenkowski says he'll insist on lower taxes for middle class

There was a lot of euphoria and momentum behind the Senate's near-unanimous approval of its version of tax reform. But if anyone thinks that will be enough to make that bill the blueprint for a final tax law, then Rep. Dan Rostenkowski (D) of Illinois would like to relieve them of the notion. Representative Rostenkowski, chairman of the House Ways and Means Committee, says there are three ``sensitive'' issues that will have to be resolved when the Senate and House versions of tax reform are discussed in the joint conference of selected Ways and Means Committee and Senate Finance Committee members.

The first and most important item, he told a group of reporters Friday before a speech to an economic seminar at the Bank of Boston, was the difference in the treatment of middle-income families.

``In the Senate bill, they're down to about a 5 percent rate reduction,'' he said. ``In the House bill they're at 9. It's not so much the rates but the distribution that I'm concerned with.'' Even though the lowest personal tax rate in both bills is 15 percent, the House bill contains more deductions for individuals.

While the House bill has four personal rates going up to 38 percent and the Senate bill has just two, Rostenkowski said he would be willing to accept something closer to the Senate's 27 percent top rate in exchange for a bigger tax cut for the middle class and higher corporate rates.

Sen. Bob Packwood (R) of Oregon, chairman of the Finance Committee, has called the 27 percent rate the ``glue'' that holds the Senate bill together. President Reagan has said he prefers this to the 38 percent top rate in the House version. But Rostenkowski repeatedly indicated he is more concerned with how much those in the middle-income brackets take home after taxes.

``I would be willing to shoot for the Senate's top rate as long as we approach the House's after-tax income distribution,'' he said.

In the area of corporate taxes, Rostenkowski would like to see the elimination or reduction of several tax breaks, including special breaks for some military contractors and oil and gas drillers, deductions for banks writing off bad debts, a cut in the rate at which businesses can write off machinery and equipment, and tax breaks that encourage corporate takeovers.

``In the end, the real fight won't be between the House and the Senate -- but between corporate lobbyists and the middle income taxpayer,'' he declared in his speech.

The second item that will need to be addressed in the joint conference, he said, concerns state and local sales taxes. The House bill would keep the current law's deductions for all state and local income, property, and sales taxes. The Senate bill, however, would greatly restrict the sales tax deduction. This would be particularly hard, Rostenkowski pointed out, on taxpayers in states with no income taxes but hefty sales taxes, and on people in states that have income taxes as well as sales taxes on all items, including food and clothing.

``What you have here is a situation that's very unfair because while people who are paying other taxes can deduct them, people who are just paying sales taxes can't deduct it,'' he said.

The third area is the individual retirement account, he said. The House bill kept the deduction for IRA contributions as well as the the tax-free accumulation of interest and dividends for IRAs, while the Senate eliminated the deduction.

``I didn't touch IRAs,'' said Rostenkowski, ``because I knew that would irritate a consitituency out there that for the first time felt they were enjoying a preference or a shelter or a loophole.'' If some other source of revenue can be found that would let the IRA deduction survive, he said, ``I'd like to solve that problem.''

Congressman Rostenkowski was not totally critical of the Senate's tax-writing efforts. He praised several Senate provisions that he said are tougher than those in the the House bill. The Senate bill, he said, ``tightens down on real estate shelters more than the House and goes after tax dodges used by the wealthy to protect large incomes.'' It also restricts interest deductions and eliminates the capital gains differential, he noted, taxing these gains as ordinary income. The top capital gains rate in the House bill is 22 percent.

The joint House-Senate conference, which promises ``more tedium than tension as we plow through hundreds of items in dispute,'' will begin working to meld the two bills about July 16, Rostenkowski said. The congressman added that he would like to see a final bill completed and on its way to President Reagan about six weeks later.

``It would be Christmas in September if we could get it done by Labor Day,'' he said.