A Game New Plan On Taxes

Like Rocky Balboa, the movie boxer, the plan to change the federal tax system keeps coming back for more punishment. Just when the idea has been battered to the canvas, it struggles to its feet again. Last week reform went another round, this time energized by a fresh proposal from the House Ways and Means Committee. Some of the populist ideals found in the Reagan Administration's two earlier proposals remain alive in this one. The bill would cut tax rates, close loopholes, give relief to millions of working poor people and make corporations carry a greater share of the load. Many business leaders, though, claimed that the bill would single them out for unfair burdens. And the Reagan Administration added suspense by momentarily standing back from the debate while trying to decide whether to support the bill.

The reform effort began a year ago, when the Reagan Administration launched a bold plan, dubbed Treasury I, to overhaul the absurdly complicated and loophole-ridden income tax law. The President put his name behind another, more modest plan known as Treasury II last May and promoted it with whistle-stop tours around the U.S. But the tax-reform movement slowed to a crawl until a month ago, when Illinois Democrat Dan Rostenkowski, the Ways and Means chairman, started engineering the new proposal. "We have done," he boasts, "what many people thought couldn't be done."

Under the House committee bill, the average American would get a tax cut of about 9%, with smaller breaks going to upper-income individuals. Like the earlier two proposals, the new plan would reduce the number of tax brackets for individuals from the current 15, which range from 11% to 50%. But while Reagan's proposal had three brackets, 15%, 25% and 35%, the Ways and Means bill has a fourth, 38%, which would be for individuals with taxable income of more than $60,000.

Both the House committee and the Administration expect their reform plans to remove some 6 million people from the tax rolls. A husband and wife with two children would pay no taxes if they earned less than $13,100 in 1987, in contrast to $9,575 currently. The Ways and Means proposal would accomplish this partly by increasing the personal exemption from $1,080 to $2,000 for short-form filers.

The Ways and Means plan, though, differs dramatically from the Administration's in retaining some of Middle America's most hallowed tax breaks. One is the privilege of writing off mortgage interest on a second home. The Administration's proposal to limit that advantage stirred a ruckus not only from homeowners but from the building industry and mortgage lenders. Another break that Ways and Means restored is the deductibility of state and local taxes, which was stoutly defended by legislators from high-levy states. One congressional study estimated that the loss of deductibility would add some $1,600 to the average 1987 bill for about half of New York's taxpayers. The state's Governor, Mario Cuomo, hailed the new plan. Said he: "I am delighted. I will fight for the bill."