Tax reform: part 2. Bill moves to Senate where finance chairman sees few changes but need for tax increase

After a clumsy start, the drive to rewrite the nation's tax code is back on track. And it's beginning to look like a locomotive that won't be stopped until it reaches the President's desk. Senate GOP leaders predict the upper chamber will follow the House, which this week passed a tax-overhaul bill amid heavy pressure from President Reagan and House Democrats.

Sen. Bob Packwood (R) of Oregon, chairman of the Senate Finance Committee, says he expects to send a bill to the President next summer. He adds that the Senate version will vary only ``at the edges'' from the House version unless President Reagan leads the way for new revenues.

The highly independent Senate Republicans are sending a message that they will not necessarily toe the Reagan line when they take up the tax revision. They warn that the President's promises to make major changes in the House-passed bill may not be possible to fulfill, especially if there are no new taxes to make up for the loss in revenue.

Senate majority leader Robert Dole (R) of Kansas dubbed as ``lofty goals'' Reagan's promise to sign a tax bill only if it gives a $2,000 exemption to all taxpayers, restores some industry tax breaks, and sets a top individual tax bracket at 35 percent.

The House-passed version is less generous in each of those areas, but it continues a full deduction for state and local taxes that the Reagan administration opposes.

Senator Packwood says that ``there's no way we could make all of those changes,'' proposed by the President, ``and still have a bill that's revenue neutral.'' He adds that the House version is ``not all that bad'' on balance.

Packwood has long held that the Senate would follow the House and keep the popular state and local tax deduction. He says that ``if the President is assuming that the Senate is going to repeal'' it, then ``he's operating under a mistaken impression.''

The state and local tax deduction costs the Treasury a whopping $166 billion over five years. Packwood suggests that the President would have to offer new taxes to pay for the tax breaks he proposes. ``He's going to have to take the lead on it,'' says the Finance Committee chairman.

Majority leader Dole acknowledges that it ``won't be easy,'' to pass a tax-overhaul bill in the Senate. The remark probably understates the challenge as the bill reaches his side of the Capitol. In the first place, Senate leaders have never been among the cheerleaders of President Reagan's bid to overhaul tax law.

One of the ironies of the tax issue is that its chief promoter outside the White House has been Dan Rostenkowski, a veteran Chicago Democrat and chairman of the House Ways and Means Committee. Representative Rostenkowski embraced tax reform as an issue and worked tirelessly to push a bill through the House, despite broad skepticism.

Strict House rules allowed Rostenkowski to strike deals in his committee and pass his bill intact on the House floor.

Now Packwood, who has never been enthusiastic about tax reform, moves to center stage.

The Senate process is free flowing. After the Finance Committee completes its draft, the bill can be almost entirely reshaped by amendments in the full Senate, with corps of lobbyists lining the hallways and watching every vote.

The tax overhaul will also be difficult in the Senate because the upper chamber is controlled by the GOP, which has not traditionally favored major tax reform.

Until Reagan launched his campaign on the issue, revenue reform was generally been a Democratic issue, aimed at shifting the tax burden from individuals to business.

House speaker Thomas P. O'Neill Jr. (D) of Massachusetts underscores that fact by declaring that the Democrats ``rescued tax reform from the jaws of big business Republicans.''

In fact, the chief concern of the GOP has been that the House version of tax reform would damage business and industry. Packwood says that the ``bulk'' of Senate Republicans oppose eliminating many business tax breaks. He says they want to bundle up the House-passed version and send it to Mr. Reagan with hopes he will veto it.

Packwood adds his own prediction: ``We're going to take this bill. We're going to change it as best we can. Whether or not it'll be changed to the satisfaction of the administration, I can't tell you now.