Economic Growth Bill Altered by Senate Panel : Taxes: Senators expand enterprise zones, drop credits for first-time home buyers from $32.5-billion measure.

WASHINGTON —  Senate tax bill writers more than doubled the amount of aid for an expanded enterprise zone program in blighted cities and rural areas Tuesday, but to offset the cost, they scrapped President Bush’s popular plan to give tax credits to first-time home buyers.

The changes, which increase the number of enterprise zones from 25 to 125 and raise tax incentives from $2.5 billion to $5.5 billion, were made by the Senate Finance Committee just before the Senate began debate on the $32.5-billion tax-break measure.

In addition to deleting Bush’s plan for a $2,500 tax credit for first-time home purchases in the last half of this year, the panel also dropped another part of the President’s economic growth package: a provision that would have earmarked $1.7 billion for tax breaks on business investment in 1992.

The finance panel had approved a tax bill that included a major overhaul of the enterprise zone program less than two weeks ago. But the panel’s chairman, Sen. Lloyd Bentsen (D-Tex.), and the committee decided to revise the bill in the face of a veto threat.

Housing Secretary Jack Kemp had termed the original legislation a “hoax on the poor,” and advisers to Bush said they would recommend vetoing the original version.

There was no immediate reaction from the Bush Administration to the major changes in the bill.

The bill--expected to be the only tax legislation to clear Congress in this election year--also would restore fully deductible individual retirement accounts regardless of the taxpayer’s income, and repeal the two-year-old luxury tax on yachts, planes, furs and jewelry.

Sen. John H. Chafee (R-R.I.) charged that the IRA provisions were a giveaway to the wealthiest Americans and would cause deficit increases of at least $11 billion a year after 1997. But his proposed amendment to eliminate the expanded benefits for savers was killed by a lopsided 72-25 vote.

On the controversial enterprise zone issue, the revised bill authorizes 125 tax-favored areas designed to spur investment in 75 inner cities. Included are 40 zones in cities with fewer than 500,000 people, 40 in rural areas and 10 on American Indian reservations. The original legislation provided for only 25 such zones, with 15 in urban areas, eight in rural areas and two on Indian reservations.

“We think it will have a much better chance of working” with additional funds, Bentsen said. But he continued to oppose a Republican move to reduce capital gains taxes in the zones.

The biggest tax break would go to businesses, which could claim a 30% wage tax credit on workers who are residents of the zone, up to $4,500 a year for each worker. In the original bill, the ceiling on this wage tax credit was $8,000.

The bill, originally sparked by the Los Angeles riots, became a major vehicle for the extension of a dozen popular tax breaks that expired June 30, as well as for other parts of Bush’s proposals designed to strengthen the feeble economic recovery.

It includes a long-sought benefit for full-time real estate professionals that would allow them to offset losses on rental units against other income, thus revising the so-called “passive loss” rules.

In all, the measure reduces taxes by a total of $32.5 billion over the next five years. Under the pay-as-you-go rules required by the 1990 Budget Enforcement Act, the amount will be offset by other tax increases.

The bill makes permanent two provisions that restrict itemized deductions and phase out personal exemptions for individuals who make at least $100,000 a year. In addition, it speeds up collections of estimated taxes from self-employed workers and corporations. Deductions for job-related moving expenses also would be curbed.

Securities dealers would be required to pay taxes on the market value of their holdings, thus raising their taxes.