Related topics

Administration Gives Qualified OK to Excise Tax Boost

April 21, 1986

WASHINGTON (AP) _ Amid complaints from business and labor, the Reagan administration offered measured support Monday for raising consumer taxes to finance overhaul of the federal income tax.

″The administration will entertain the possibility of selective increases in excise taxes in order to create a revenue-neutral tax-reform package,″ meaning one that brings in the same money as present law, Roger Mentz, assistant secretary of the treasury for tax policy, told the Senate Finance Committee.

However, there was little evidence of support among committee members for the excise increases, proposed by Chairman Bob Packwood, R-Ore., who has called them ″the engine that drives the rest of the bill.″ There has been no indication how the panel would raise money if, as expected, it rejects the excise proposal.

Sen. John Chafee, R-R.I., questioned the wisdom in raising one tax so that another could be cut. Sen. George Mitchell, D-Maine, called it unconscionable that the administration would want to raise consumer taxes - which fall most heavily on lower-income people - in order to pay for income-tax relief ″for those at the very highest end of the income scale.″

Packwood has proposed a three-part plan to raise excise taxes by about $75 billion over five years to finance the kind of income-tax package that could win President Reagan’s support.

Packwood would quadruple the tax on wine; raise taxes on alcohol, tobacco and motor fuel automatically as prices rise, and require businesses to pay income tax on the excise taxes and import tariffs they collect from consumers.

Although the third provision appears to affect only business, in reality, economists say, much of the tax increase would be passed along to consumers as higher prices. A 100 percent passthrough, Mentz said, would raise the price of cigarettes by about 9 cents a pack, a six-pack of beer by about 10 cents and a gallon of gasoline by about 4 cents.

While Mentz said the administration supports higher excise taxes if needed for income-tax overhaul, he added he was not necessarily endorsing Packwood’s proposal, which could amount to a 54 percent increase in some excises.

″We would have a problem supporting a 54 percent increase in all excise taxes,″ the Treasury official said.

Witnesses from numerous industries and interest groups complained that the tax increases would be devastating.

Sen. Pete Wilson, R-Calif., pleading the case for the wine industry, told Packwood: ″You’ve come to the point you have to ask yourself if it (tax reform) is worth it. ... Perhaps the reforms are not worth what they would produce in the way of economic dislocations.″

A sample of other testimony:

-State Sen. Clarence M. Mitchell III, D-Md., speaking for black legislators: Excise taxes ″demand the modest wage-earner pay more for a wide range of products, more of his income in taxes, than is expected of the high- income worker. This, in effect, is reverse Robin Hoodism: taking from the poor to give to the rich.″

-American International Automobile Dealers Association: ″Consumers would face an increase of $100 per average-priced (imported) car and $500 per light truck.″

-Philip H. Knight, president of Nike, Inc., makers of footwear and third- largest employer in Packwood’s home state: If the proposal had been law last year, Nike would have had an $8.5 million loss instead of a $10 million profit. The plan ″is a backdoor method of raising revenue simply by increasing prices to the average taxpayer.″

-Airlines and the trucking industry, heavily dependent on fuel, said they would be put at a heavy disadvantage against railroads.

-Robert E. Dewar, chairman of the executive and finance committees of K Mart Corp., speaking for retail merchants: Raising taxes on business will require them to pass the costs along to customers, making the tax system ″more regressive by discriminating against low- and middle-income consumers.″

LTV Corp., which has steel, space and energy interests, endorsed Packwood’s package as long-overdue protection for U.S. industries against foreign competition.

Witnesses for health and science groups called for higher taxes on alcohol and cigarettes in an effort to reduce smoking and drinking.

Packwood’s plan for overhauling the income tax, modeled after Reagan’s, would reduce income tax rates for most individuals and businesses and take away all or part of some deductions.

The Finance Committee’s reluctance to eliminate some of the special benefits in present law prompted Packwood on Friday to suspend further action on the bill.

Update hourly