Tax reform may add top bracket for the wealthy. `Rosty' spearheads Democratic effort to alter Reagan tax reform

Congress is likely to seek a better tax break for middle-income families. And it also may add to Ronald Reagan's tax-reform proposal an additional bracket to further tax the wealthy. Rep. Dan Rostenkowski, chairman of the House Ways and Means Committee, says lawmakers from both parties are pushing for ``some more fairness.'' There is concern that the Reagan tax plan is too generous to the rich, he says.

The White House proposal calls for reducing the current 15 income-tax brackets down to three. The plan calls for families earning more than $42,000 annually to pay the same rate as those earning $1 million or more.

``I think coming down from 15 to three [tax brackets] is amiable,'' Representative Rostenkowski told reporters yesterday at breakfast. ``But 15 to four is not a disaster.''

Says the congressman, ``You've got to complicate the code to be fair.''

The Ways and Means chairman also says he will look at four ``big bucks'' items as he looks for ways to plug loopholes. They include depreciation allowances for businesses, tax breaks for oil and gas industries, employee fringe benefits, and deductions for donations to charities.

President Reagan's tax plan gives up $279 billion in possible revenues in those areas over five years, according to Rostenkowski. A Ways and Means Committee source says another major Rostenkowski target is the favorable tax rate the Reagan plan gives capital gains.

Rostenkowksi, who has gained national prominence by promoting Reagan's tax-reform effort, avoided harsh criticism of the President's plan and gave reporters an optimistic view of prospects for tax reform. ``We're on a roll,'' he says of the first week of hearings in his committee.

Early witnesses have been favorable to the tax-reform plan. Many of those attending have sported ``Write Rosty'' or ``I Wrote Rosty'' buttons, a reminder of Rostenkowski's televised invitation to address him by his nickname. Rostenkowski says his office has already received more than 6,000 letters from supporters.

While his tax leadership has brought speculation about his hope to become House speaker, Rostenkowski joked yesterday that some members of the public now speak of putting him in the White House.

The Chicagoan, who grew up in the machine politics of the late Mayor Richard Daley, has seized on tax reform as an opportunity for both his party and his personal career.

``The President has the upper hand,'' he conceded when asked about who gains politically from tax reform. ``But ultimately if we give people what they are asking for, we'll [the Democrats] benefit from it.''

He said of his televised response to the Reagan plan, ``Until the response, the Democrats weren't considered in the equation of tax reform. We're there, and the best thing we can do is play it out as best we can.''

Rostenkowski holds out no promise that the reform, if passed, would boost economic growth. ``What ultimately it means for growth or the economic structure of the country in the future, I don't know,'' he says, adding that the impetus for change is public demand.

The reform push also allows Rostenkowski to shine up a somewhat tarnished image in the House of Representatives. Four years ago he engaged in a bidding war with Republicans in offering tax breaks to businesses. The 1981 tax bill that resulted has been widely seen as too generous partly because of his role.

``We allowed people in certain areas to get two-thirds of the whale,'' recalled Rostenkowski of the 1981 tax cut. ``Now we're just trying to get a little of that back.''

He conceded that reform will be difficult. For example, the 1981 allowances for depreciation of capital expenses would be curtailed in the Reagan tax plan. Rostenkowski doubts that Congress will go along.

``We made a commitment to the investors,'' said the congressman. ``That puts us in a bind.''

A panel of chief executive officers from six top corporations testified this week that the Reagan proposal on depreciation would be retroactive and unfair. Rostenkowski noted that no member of his committee challenged that assertion.

Rostenkowski sees a major controversy surrounding the Reagan plan to abolish federal tax deductions for state and local taxes. Without that item, which is one of the biggest changes, the reform might disintegrate, he says. As for the final form of a House bill, he is keeping his options open.

The Ways and Means chairman said he is convinced that the President also has some flexibility. ``If we're willing to get into the combat area with all the preference protectors, I don't think the President would object to it,'' he told reporters.