Senate To Take Up Tax Reform

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Washington--Aided by some last-minute White House lobbying, the Democratic-controlled House last month approved its historic overhaul of the nation's tax code, only days after rebellious Republican legislators had apparently killed it.

The measure, which reduces the taxes most individuals pay and raises taxes on corporations, now goes to the Senate, where the White House has promised to lobby for a significantly different bill. Senate leaders and political observers, however, predict that the chamber will probably pass a version of the bill essentially identical to the House-passed measure.

Fashioned by the chairman of the Ways and Means Committee, Representative Dan Rostenkowski, Democrat of Illinois, the House bill treats the education community more favorably than a plan the Administration submitted early last year.

It retains the deductibility of state and local taxes--which the Administration plan had targeted for elimination--as well as the tax-exempt status of employee fringe benefits and bonds that finance school construction.

The bill also makes permanent the charitable deduction for nonitemizers.

But the bill also limits voluntary employee contributions to retirement funds and taxes benefits that retirees withdraw from their pension plans in the first few years of retirement. (See story on page 1.)

It also taxes gifts of appreciated property to colleges and universities, and limits the use of tax-exempt bonds for higher education.

The House approved the tax bill on a voice vote after turning back a Republican alternative that would have limited nonitemizers to deducting only 70 percent of their state and local taxes.

Days before, in a stunning defeat for the President, House Republicans had voted en masse to block floor consideration of the Ways and Means Committee bill. But the President was able to change enough minds to bring the bill back to the House floor.

In return, he promised House Republicans that he would veto any bill that did not lower the top tax rate on indivduals to 35 percent or restore many of the existing tax benefits for business.

House lawmakers also passed a nonbinding resolution aimed at delaying the effective date of the reforms, but it remained uncertain last month whether the Congress would abide by it.

Deductibility Threatened

Observers speculated last month that the President would have a hard time keeping his veto promise to House Republicans without convincing the Senate to limit state and local tax deductibility. Those deductions cost the federal treasury more than $30 billion a year.

"I expect we'll have a hell of a fight on our hands," said Michael Resnick, associate executive director of the National School Boards Association, which along with other education groups lobbied hard for the deductions in the House.

But Senator Bob Packwood, the Oregon Republican who chairs the Finance Committee, said he doubted the Senate would limit deductibility.--jrs

Vol. 05, Issue 17

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