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Christmastime on Capitol Hill

4 minute read
TIME

Courting tax votes with tax breaks—and boondoggles

The great tax battles of 1981, waged by both parties in Congress as matters of lofty principle, were degenerating last week into a petty pursuit of votes in which special interests were courted with particular tax breaks. “It’s terrible that we should be involved in a bidding war,” admitted House Ways and Means Committee Chairman Dan Rostenkowski. “But it all depends on whether you want to lose courageously or to win. I like to win.” In fact, except for various tacked-on goodies and a Democratic edge in generosity toward the poor and middle class, the emerging Administration and Democratic tax bills contain few practical differences. The skirmishing was over who would be able to claim a political victory.

As the Senate rushed toward completion of the Administration-backed bill and the House Ways and Means Committee drafted a Democratic alternative, U.S. taxpayers were assured of at least a two-year cut (see chart). President Reagan would be seen as the victor if the final bill includes a third-year reduction. Without one, he argues, the average American will actually face a net tax increase because of inflation, higher tax brackets and rising Social Security obligations. Some House Democrats last week said they were willing to compromise by accepting a third-year “trigger” under which the tax cuts would continue only if the economy seemed to warrant it at the time. So far, the White House is holding out for a firm third-year commitment to cut again.

Still, the sweeteners amount to more than a jar of jelly beans. Some were a shade outrageous. Rostenkowski, who has been saying that the G.O.P. version favors Big Business and wealthy individuals, protected a tax write-off for some 2,500 commodities dealers who straddle the market through offsetting buy and sell orders. Not surprisingly, the commodities market is based in Rostenkowski’s home city of Chicago. Republicans offered a special deduction to truckers, who were strong supporters of Reagan’s candidacy.

The Senate voted to tie tax brackets to the rate of inflation, beginning in 1985. Reagan opposed including that in this bill mainly because of the loss to the Treasury: some $12.6 billion in 1985. The Senate aim is to avoid bracket creep, in which inflation edges taxpayers into a higher tax rate though they do not gain in buying power. Both chambers seem to agree that the estate tax should be nearly wiped out. They would raise the value of estates that can be passed to an heir tax-free from $175,625 to $600,000. Only .03% of all U.S. estates exceed $600,000.

The tax fight is gaining no glory for either side. Although Reagan’s congressional strategists admitted they did not yet have enough votes to push their own bill through the House as a substitute for the Democratic measure, they talked of waging such a battle nonetheless. Why? Explained a senior White House official: “Losing could be winning. It gives us an issue in 1982.” The issue would be that the Democrats did not give the President his threeyear, across-the-board tax cut. Thus if the economy does not improve by late next year, the Republicans will blame the Democrats. House Speaker Tip O’Neill had earlier followed a similar cynical strategy on Reagan’s budget. He acted on the private theory that it would be better for Democrats to give Reagan what he wants, even on the assumption that it will not work, than to catch the blame for blocking his economic program. The two sides were in agreement on one point: Congress should finish its tax chores before recessing, even if it means remaining in session during the first week in August.

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