Talking taxes in Congress. Treasury chief takes case for Reagan plan to House

The Reagan administration's tax-reform proposal has started its long journey through Congress. Treasury Secretary James A. Baker III was grilled Thursday by members of the tax-writing House Ways and Means Committee as it kicked off congressional consideration of the plan.

The aspects of the proposal that drew the sharpest questions included its inability, during its first few years, to raise as much revenue as the current tax law.

Various legislators also criticized the plan's boost in overall corporate taxation, its alleged unfairness to the middle class, and a provision that would eliminate the current deduction for state and local taxes. There were also questions about the desirability of the plan reducing favorable treatment of the oil and insurance industries.

Most of the members complimented the administration on its tax plan before questioning specific elements.

``The President has given us a tax reform proposal which, compared to present law, is monumental,'' said House Ways and Means Committee chairman Dan Rostenkowski (D) of Illinois. ``It screws down on some longstanding abuses. It is a starting point.''

Secretary Baker called for ``some very basic, fundamental changes to remodel the [tax] code.''

``The President stands squarely behind these proposals,'' he said but indicated a willingness to compromise on some issues. ``We will not be able to succeed unless we mount a bipartisan effort.''

In a bid to win such support, Baker revealed the results of a new study of tax payments. It covered individuals and families with income sources of $250,000 or more in 1983. Households with such income are in the top one-fourth of 1 percent of all US households.

The study found 30,000 such families, or 11 percent of the group, paid taxes amounting to less than 5 percent of their income. Among those with income sources exceeding $2 million in 1983, only four out of 10 paid as much as 20 percent of their income in tax.

``The system is too complex and is unfair,'' Baker said.

While a new tax code is being designed, the old one is having some problems. Thursday was the deadline for the Internal Revenue Service to send out refund checks without paying taxpayers 13 percent interest on the money it owed. But due to computer foul-ups, interest payments are expected to be higher than the $209 million paid in 1984, IRS officials say.

President Reagan traveled to Williamsburg, Va., and Oshkosh, Wis., to build support for changing the current system. The current system ``looks like swiss cheese -- big holes no matter how you slice it,'' Mr. Reagan said in Oshkosh.

Members of the Ways and Means Committee thought they saw some holes in the administration's tax reform proposals.

Mr. Rostenkowski noted that the Reagan plan would lose $12 billion in revenue over the next five years, compared to the current tax code.

``The worst that can happen to us is to write a bill only to find that revenue neutrality has been sabotaged by faulty revenue estimates,'' he said.

Baker said he was ``quite confident'' that the plan was revenue neutral in the short run and said it ``indeed is'' neutral in the long run. Losses in fiscal 1988-90 amount to 0.24 percent of projected government revenues, ``about as close as you can get'' to neutrality, he said.

Rep. Richard A. Gephardt (D) of Missouri charged that the new White House plan represented a ``shift or retreat'' from the tax cuts for the middle class contained in the Treasury's draft proposal issued in November. He noted that compared to Treasury I, smaller percentage tax cuts were going to those with incomes of $20,000 to $50,000 and bigger cuts to those with income of $200,000 or more.

Baker said the earlier plan ``simply had no chance of passage.'' High-income individuals who have been paying high taxes ``ought to get'' relief, he said. Those who have not been paying taxes will find that tax shelters ``will not be anywhere near as available.''

Rep. Thomas J. Downey (D) of New York said that the plan to eliminate deductions for state and local taxes would make many citizens ``Tories in this [tax] revolution.''

Baker replied, ``We frankly don't think it's fair'' to have taxpayers in low-tax states subsidize the value of this deduction for residents of high-tax states such New York.