Slow Fade

With much fanfare, Ronald Reagan unveiled a bold tax-reform plan nearly five months ago and predicted that it would bring on "a second American revolution." Urged the President: "America, go for it!" But as Reagan wound up a nationwide series of rallies to promote his proposal, it was apparent that America was not going for it. Preaching his tax- simplification gospel in Boise last week, the President won the same enthusiastic applause he had received at other barnstorming stops. Yet as Republican Senator Steve Symms observed, "They were cheering, but it was for him, not for tax reform." Various polls indicate public apathy on the proposal despite general support for the idea of tax reform, and Congressmen of both parties are expressing skepticism. As a radical budget-balancing bill dominates debate on Capitol Hill, tax reform appears to be dead for 1985--and perhaps beyond.

Illinois Democrat Dan Rostenkowski may have sounded the death knell when he announced last week that the House Ways and Means Committee, which he heads, would postpone "temporarily" any further sessions on tax reform. The 36- member committee has tinkered with the President's package, hoping to come up with a proposal that could win House approval. It is now virtually impossible for a tax-reform bill to pass the House and reach the Senate by Nov. 1, the deadline designated by Senate Majority Leader Robert Dole. Thus Congress is not likely to tackle tax reform this year. It is doubtful that the lawmakers will take any action on such a controversial issue in 1986, an election year.

The tax-reform postponement was necessary to allow for a Senate-House conference on the disputed Gramm-Rudman amendment, a proposal designed to reduce the federal deficit to zero by 1991. The hastily drafted legislation, approved in the Senate by a 75-to-24 vote two weeks ago, calls for draconian spending cuts in many social programs and much of the military budget, and could transfer to the President a measure of Congress's power over federal appropriations. The amendment is attached to a bill to raise the Government's debt ceiling to more than $2 trillion. Without this increased borrowing power, the Treasury predicts, the Government will run out of money by Nov. 1. Under the pressure of a bankruptcy deadline, Congress must achieve agreement on the budget-balancing amendment before it can pass the debt-ceiling bill.

The day before Rostenkowski decided to interrupt the tax-reform deliberations, he saw that the package was in danger of unraveling. The Ways and Means Committee rejected proposals by Reagan and Rostenkowski and voted to allow taxpayers who do not itemize deductions to continue to write off donations to charity. Moreover, the committee opted to widen a $2.9 billion loophole for commercial banks that the President and its chairman sought to close. It decided not to abolish a tax deduction for banks on money reserved to cover possible bad debts. Instead the committee increased the banks' tax break by $4.7 billion over the next three years.

Nevertheless, the President seemed determined not to yield on any tax issues whatsoever. Late last week White House Chief of Staff Donald Regan wrote to Dole saying that the President might veto the Senate's hard-won deficit-reduction plan for fiscal 1986 because of tax increases on cigarettes and some imported goods and a new tax on manufacturers to help pay for toxic- waste cleanups. Despite Reagan's hang-tough posture, a top White House aide admitted that "we may be whistling past the graveyard" on the chances of seeing the cherished tax-reform proposal emerge from Congress.