Support for Reagan tax reform softens in Congress

Three weeks after President Reagan raised the curtain on his tax-reform plan, the applause on Capitol Hill has faded. Critics are denouncing loopholes on one hand and lost deductions on the other. Manufacturers are sending word that the Reagan plan spells disaster for heavy industry. Losing current tax breaks for capital investments would cause many to ``take a very hard look'' at whether to invest outside the United States, says a spokesman for the Ford Motor Company.

Republican members of Congress are embarrassed by the Reagan proposal to give taxpayers earning $200,000 a year the biggest cuts.

Gov. Mario Cuomo of New York, one of the most eloquent Democratic persuaders, has launched a crusade against the provision to end state and local tax deductions for federal taxpayers. The President is upsetting ``the entire notion of states' rights,'' the governor charged here this week. He said the plan would cause states to lose revenues and would put home values, schools, and local services in jeopardy.

Supporters of tax reform appear undisturbed by the fulminations of various groups. The outcry is standard procedure for tax reform, say veteran officials on Capitol Hill.

``As long as everybody is unhappy, we can go forward,'' Rep. Fortney H. Stark (D) of California said in an interview. ``You're mostly hearing it from lobbyists, who are paid to criticize.''

Representative Stark, a senior member of the House Ways and Means Committee, which is considering the reform bill, said enthusiasm has not dampened. ``I think there's a strong will by members of the committee to see this work,'' he said.

``We are now in the second-look stage, where people are beginning to peel back the outer layers and beginning to see that there are things that have to be given up,'' says Rep. Richard Gephardt (D) of Missouri, a longtime proponent of tax reform.

He told reporters at a breakfast meeting this week that he now hopes for a ``third look,'' in which a majority of Americans will decide that despite losing some deductions, the ``price is worth paying'' for reform.

The key, according to members of both parties, is reducing taxes for a majority. ``If they're going to pay less taxes, they'll be for it,'' said Stark, adding that the bill won't pass ``unless 70 to 80 percent of the people pay less taxes.''

If the outlook is bright for tax reform in the face of detractors, it is largely because of President Reagan's unflinching support. Even as he faces a major hostage crisis, he continues his trips to stump for his tax plan.

Virtually all the major political leaders in the capital have jumped aboard the tax-reform train. ``The speaker wants tax reform as a matter of principle,'' says Christopher J. Matthews, an aide to House Speaker Thomas P. O'Neill Jr. (D) of Massachusetts.

``The idea is to come out with a more populist bill'' than the President's, the aide says.

The chairman of the Senate Finance Committee, Bob Packwood (R) of Oregon, has embraced reform.

Probably the most important factor now is Rep. Dan Rostenkowski, chairman of the House Ways and Means Committee. Since tax bills must originate in the House, his panel will give reform its first crucial test.

The Illinois Democrat, after making a public commitment to reform on television, has moved into a quiet phase. At 8 o'clock on most mornings he holds private briefings for his members on aspects of tax reform, just before he opens the day's hearings.

Representative Rostenkowski is described as utterly committed and has inspired a kind of committee loyalty that is rare on the Hill. For example, members have held back harsh criticism of tax reform, because the chairman ``said to keep our powder dry,'' Stark says.

The Ways and Means chairman will need loyalty as well as legislative skills to produce a tax bill.

The first few weeks show how difficult his task is. Besides the other problems appearing on the first trial runs, economists are charging that the President's reform would bring less revenue and a bigger deficit.

The business community has split sharply. Service and high technology companies would benefit from the President's bill. ``I think this bill is overall pro-growth, and in the end, that helps all,'' says Jack Albertine, founder of the American Business Conference and head of a pro-tax-reform business coalition.

Governor Cuomo's complaint about losing state and local tax deductions could become a major stumbling block for tax reform. That provision would be worth about $40 billion a year, and it is the most commonly used deduction.

So far the Reagan administration has successfully isolated the protest as a New York problem. It has argued that the issue is whether 35 low-tax states should subsidize 15 high-tax states.

Foes of the Reagan plan argue that theirs is a much broader concern. They plan to announce a national coalition next week. If the message reaches individual tax payers, it could force changes in tax-reform proposals.

A spokesman for Rostenkowski said that after the publicity last month, about 40,000 ``Dear Rosty'' letters poured in to support tax reform. Now the letters are changing, as writers have begun to ask him to save their favorite tax breaks.