Minimum Business Tax Idea Gains in Congress

WASHINGTON —  Despite President Reagan’s best efforts to bury it, the idea of a tax increase refuses to die.

“We’ve done everything but put a stake through the heart of some of these proposals,” an Administration budget official said. “But they keep coming back to haunt us.”

Democrats are largely responsible. As crucial components of their deficit reduction packages, Senate Democrats have proposed various kinds of tax hikes aimed at eliminating tax preferences or imposing a minimum tax on corporations that now escape federal income taxes.

Leading Democrats in the House are also toying with a minimum corporate tax, although some of them--including Dan Rostenkowski of Illinois, chairman of the Ways and Means Committee, and Richard A. Gephardt of Missouri, co-author of the leading Democratic tax reform plan--object that a minimum corporate levy might undercut tax reform.

And a handful of Republicans is joining in. Sens. Charles McC. Mathias Jr. of Maryland and Mark Andrews of North Dakota, with the quiet backing of some of their colleagues, have proposed tax hikes in the hope that the increased revenues would reduce the need for some of the most drastic spending cuts in the deficit reduction package put together by the Senate Republican leadership and the White House.

Corporations Attacked

Most of the tax proposals would avoid direct tax increases for individuals. Instead, they focus on business, which has aroused a growing backlash on Capitol Hill by strongly supporting the Administration’s proposed deep domestic spending cuts at a time when dozens of highly profitable corporations have managed legally to avoid federal taxation.

In an impassioned speech on the Senate floor last week, Sen. Ernest F. Hollings (D-S.C.) accused corporate executives of arguing, “Oil companies need incentive. Little children--you give them a 30-cent breakfast and you have ruined them for life.” Hollings added, “The Administration says do away with (college student aid) so that General Electric does not have to pay taxes.”

The Republican proposal backed by Reagan relies exclusively on a three-year, $297-billion package of spending cuts designed to reduce the fiscal 1988 deficit, estimated at $244 billion if there are no spending cuts or tax increases, to just less than $100 billion.

By contrast, Hollings has outlined a one-year across-the-board freeze on government spending coupled with $145 billion in tax increases over the next three years, aimed at balancing the federal budget by 1989.

Another package, prepared by Sen. Lawton Chiles of Florida, the top-ranking Democrat on the Budget Committee, would reach the same deficit goal as the Republican plan. But it would scale back many of the GOP plan’s domestic spending cuts and, instead, raise taxes $67 billion over three years by relying on an unspecified freeze on the use of tax loopholes.

Most Republicans, convinced that Reagan would veto any tax increase that grew out of a budget compromise, have publicly lined up against the tax proposals. Even some senators--such as John H. Chafee (R-R.I.), who has consistently supported tax increases to reduce the deficit--insist that any tax proposals should be postponed until Congress has gone as far as possible with spending cuts.

“We’ve tried tax increases as part of the budget, and you just get killed by the White House,” an aide to Chafee said. “The senator wants to do what you can on the spending side first and then, if that comes up short, look at the revenue side.”

Combination of Taxes

And another Republican, Sen. William S. Cohen of Maine, said: “It is inevitable that at the end of the road there will be a combination of taxes. Otherwise, they (GOP leaders) will not get the Democratic support they need.”

At this stage of the debate, the most popular tax proposal is some form of a minimum tax for corporations and wealthy individuals who can otherwise use the dozens of deductions, credits and exemptions in today’s tax code to avoid paying income taxes. The idea is to spread the burden of slashing the deficit beyond those who depend directly on government spending programs to those who benefit from government handouts in the form of tax breaks.

Tax breaks, Chiles argued, “are growing right now at $40 billion a year, and that is money spent just as surely as money spent on any government program. Right now, some big corporations . . . can avoid paying any tax at all and even get refunds.”

Democrats who support the minimum tax insist that, even though it would boost revenues by $15 billion to $20 billion over the next three years, it should not be termed a tax increase. “We do not propose to raise taxes,” Sen. Daniel Patrick Moynihan (D-N.Y.), co-sponsor with Chafee of a minimum tax bill, said. “We propose to begin to collect taxes.”

For some advocates of a minimum tax, the proposal is preferable to more drastic tax reform concepts.

For example, House Majority Leader Jim Wright (D-Tex.) opposes several provisions of various tax reform proposals aimed at eliminating tax preferences for the oil and gas industry, which is concentrated in his home state. But he has become the most powerful booster of the minimum tax and, supporters of a major tax overhaul say, hopes to use it to derail more comprehensive tax simplification proposals.

Similarly, Moynihan opposes the Treasury Department’s tax proposal because he believes that one of its key features, the elimination of the deduction for state and local tax payments, would harm New York.

But tax reformers argue that the minimum tax supported by Wright and Moynihan would only defuse public resentment against corporations that escape taxation without fundamentally changing the situation.

“The substitution of a minimum tax for comprehensive reform is a cop-out,” Rostenkowski complained in a speech in Chicago last month. “Even though toughening the existing minimum tax would weaken the impact on preferences, it would not erase them. The weeds would be topped, but the roots would remain.”

Supporters of the Republican-sponsored Senate budget plan also attack the minimum tax as an all-purpose excuse to avoid making tough decisions about where to cut spending.

“There are some who will propose a minimum tax as a way out of the deficit problem,” said Senate Budget Committee Chairman Pete V. Domenici (R-N.M.). “Yet, I can find no more than $15 billion to $20 billion in increased revenues over three years from the minimum corporate tax because you cannot raise any more than that. This is, some will say, a noble gesture, but it is hardly perceptible in a package of $300 billion in budget savings.”

And Senate Majority Leader Bob Dole (R-Kan.), echoing another of Domenici’s frequent arguments against the minimum tax, said that the added revenues from such a proposal should not be used to save government programs.

“I hope there is a difference in whether you close loopholes for rate reductions or close loopholes so you do not have to cut spending,” Dole said. “If there are going to be any loopholes closed at all, it ought to be for rate reduction, not more spending.”

In an effort to head off the minimum tax movement, Republican leaders won Senate approval Thursday night for a non-binding resolution to the Administration-backed deficit reduction package, endorsing the concept of minimum taxes but urging that any gain in revenues be included as part of “comprehensive tax reform legislation.”

Alternative Measures

But those who support a minimum business tax, arguing that the $300-billion package of Reagan-backed spending cuts cannot obtain congressional approval by itself, said that they would continue their efforts to incorporate a minimum tax in alternative budget measures.

As they warned, the Administration-sponsored budget proposal is already running into trouble. Last week, for example, the Senate overwhelmingly rejected a proposed curb on Social Security benefit increases that would have cut $34 billion over three years.

The Senate could reverse that decision as part of a final compromise. But the vote signaled the reluctance of many Republican senators who will be up for reelection next year to leave themselves open to attack from Democrats for depriving Social Security recipients of benefit increases designed to keep up with inflation.

Democrats point out also that Reagan, after vowing all through last year’s reelection campaign that he would not touch Social Security, finally agreed to a plan that would have limited annual benefit increases for the next three years to about the rate of inflation minus two percentage points.

“If Reagan can go back on his pledge on Social Security, what’s to stop him from reversing his stand on taxes?” an aide to Chiles asked.

But, last week, Reagan again strongly reiterated his unequivocal opposition to any type of tax hike. “A tax increase, any tax increase, is out,” he said in a speech to the U.S. Chamber of Commerce. “As a matter of fact, the only way they’ll pass a tax increase is over my dead body.”