Reagan Says All Aboard

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Incredibly, the race to forge a final bill before the House begins its August recess at the end of this week was stalled for two days by a deadlock over what Democrats claim was a mere $145 million out of some $17 billion in spending cuts that are also part of the package. At issue was a limitation on how much money a mother on welfare can earn without losing her benefits. Democrats, led by House Ways and Means Chairman Dan Rostenkowski, argued that the cap was needless and cruel. Republicans, led by Senate Finance Chairman Robert Dole, contended that lifting the cap actually would cost up to $1 billion and the limit was necessary. He was forcefully backed by Democratic Senator Russell Long of Louisiana, a longtime critic of welfare programs and former chairman of the Finance Committee. As tempers rose, Rostenkowski accused Dole in a telephone call of giving Long a virtual veto power in the conference committee. Angry, Dole hung up the phone.

The personality clashes were finally smoothed over in private meetings, and the vital deliberations of the committee resumed. The huge Ways and Means Committee room of the House was jammed with lobbyists, staff assistants and reporters as the conferees, eight from the House and seven from the Senate, agonized over each line of the Senate-passed bill. Dole presided at a 60-ft.-long walnut table engraved with a giant eagle. Working long into the nights, the legislators decided to:

— Require the withholding for tax purposes of 10% of the income individuals earn in interest and dividends. Lobbyists for banks and brokerage houses fought the provision bitterly. But the IRS contends that much of this income is not reported now. Anyone earning less than $100 in such income would be exempt from the requirement, as well as many poor and elderly people. Estimated three-year gain in revenues: $12 billion.

— Eliminate a tax change that would have cut deductions for business entertainment, including the celebrated "three-martini lunch," to only half of the amount spent. This was a victory for restaurant owners, who preferred the alternative adopted by the committee. It requires that restaurants with more than ten employees must estimate the tips waiters and waitresses receive and withhold part of the sum to meet their tax obligation. The IRS claims that 84% of tip income is never reported. Estimated revenue gain: $2.1 billion.

— Require that any tax deductions claimed for medical expenses must exceed 5% of adjusted gross income, rather than the current 3%. In addition, the deduction of up to $150 for medical insurance now claimed by some 16 million taxpayers, regardless of overall medical expenses, was eliminated. Estimated revenue gain: $3.4 billion.

As the week drew to an end, the conferees struggled toward agreement on whether to close various loopholes benefiting businesses, including the "safe harbor" leasing of tax credits, and just how much cigarette, telephone and air-ticket taxes should be raised. Whatever the outcome, it was clear that Washington's well-heeled lobbyists generally were taking a beating. They will get another crack at the bill when final floor votes are taken on the package. But if Ronald Reagan prevails, the battered U.S. Treasury and the nation's precarious economy just might emerge as winners.

— By Ed Magnuson.