Reagan Wants Explanation if 27% Tax Measure Fails

DOTHAN, Ala. — President Reagan, hailing congressional tax reform efforts as a victory for his own crusade over big government and “special interests,” Thursday endorsed the Senate-passed bill lowering individual tax rates to 15% and 27%.

Speaking to a $25-a-head gathering in this southeastern Alabama community that he described as “the real America,” the President called on members of a House-Senate conference committee to retain the basic elements of the Senate bill in their final compromise.

“Let there be any significant departure from the two low individual rates of 15% and 27% and the top corporate rate of 33% that the Senate has already approved and somebody is going to have to do a lot of explaining,” he said.

“The version of tax reform approved by the Senate deserves special attention for the simple reason that it’s especially good. Not good for Washington lobbyists, or special interests--good for you.”

It was the first time the President had sought publicly to influence congressional conferees, who will begin meeting next week to resolve differences in the House and Senate tax bills. It was also a clear attempt by Reagan to claim political credit for whatever legislation is passed finally by Congress within the next month.

He portrayed tax revision as the latest in a long list of accomplishments of Reaganomics and the culmination of a “good, old-fashioned, down-home, six-year scrap with the special interests.”

Ironically, many of the special interest groups to which Reagan referred also are supporting the Senate bill.

Reagan’s own tax proposal would have established rates of 15%, 25% and 35%. The House bill would adhere to the more traditional, progressive system of taxation with rates of 15%, 25%, 33% and 38%. While the Senate rates are 15% and 27%, some high-income taxpayers would effectively pay at a 32% rate because of complexities in the Senate bill.

In his speech, the President did not specify what provisions of the Senate bill he would be willing to sacrifice to reach a compromise with the House that incorporates the Senate rates. House conferees are expected to demand higher business taxes in exchange for a top individual tax rate of 27%.

White House Chief of Staff Donald T. Regan said earlier this week that the President would like to retain tax-deferred individual retirement accounts for workers who are not vested in pension plans. The Senate bill would eliminate deferral of taxes on IRA contributions for all workers whose employers have pension plans, whether they are vested or not.

But Reagan expressed no disagreement with the Senate bill’s stance on IRAs.

Taking Poor Off Rolls

The President said he would only support a House-Senate compromise designed to remove 6 million lower income Americans from the federal tax rolls--something accomplished by the bills of both houses.

“There’s no reason to force the working poor--people already struggling--to turn over a share of their earnings to the government,” Reagan said.

He said he would prefer a bill increasing the current $1,080 personal exemption to $2,000, except for the highest income taxpayer. The Senate bill provides a $2,000 personal exemption that begins to phase out at $145,000; the House bill sets a $2,000 exemption for those who do not itemize and a $1,500 exemption for those who do.

In addition, Reagan said, the final compromise must provide incentives for capital formation, protect distressed sectors of the economy such as energy and agriculture, and eliminate “tax dodges” and establish a minimum tax for individuals and corporations. He did not specify whether he prefers House or Senate provisions on those issues.

Ridicules Tax Code

The President also amused his audience by ridiculing the complexity of the current tax code. He confessed that he does not understand his own tax return, which is prepared by a family lawyer.

“The whole income tax started in the Constitution with 16 words . . . (and now) it takes a 57-foot long shelf to hold all the tax books that have to do with all the rules and regulations of the income tax,” he said.

The crowd roared with laughter when he read what he identified as the last sentence of section 509A of the current tax code: “For purposes of paragraph 3, an organization described in paragraph 2 shall be deemed to include an organization described in Section 501C-4, 5 or 6, which would be described in paragraph 2, if it were an organization described in Section 501C-3.”

Reagan noted: “That’s just one sentence out of those 57 feet of books.”

Will Continue Campaign

Neither the House nor the Senate bills is as simple as Reagan would like. The House bill is 1,379 pages; the Senate version is 1,489 pages.

Although the President made at least a dozen trips to various parts of the nation touting tax reform immediately after he unveiled his own tax overhaul plan in May, 1985, this was his first such appearance on behalf of tax reform since both chambers passed a bill. White House aides said he would continue to campaign for the Senate version.

Reagan’s appearance here also was intended to boost the reelection campaign of Sen. Jeremiah Denton (R-Ala.). His luncheon audience dined on the popular local cuisine--fried chicken, lima beans, mashed potatoes, peach cobbler and watermelon.