Sting of Clinton tax rise could be lessened by spreading payment over 2 years Administration denies the plan comes in response to Republican criticism

August 05, 1993|By New York Times News Service

WASHINGTON -- The wealthy taxpayers most affected by the new tax increase in the Clinton budget package will not feel the full effect immediatedly because the administration has agreed to allow them to spread their payments of 1993 taxes over two years.

In effect, they will be getting a two-year loan at no interest. And for the wealthiest, the loans could amount to tens of thousands of dollars.

The plan, designed to defuse complaints that the tax increase will apply retroactively to all income earned this year, has been agreed to by congressional tax conferees. It would let taxpayers defer most of the tax increase on 1993 earnings by paying it in three annual installments beginning next April 15, without the penalty or interest charges usually assessed on late payments.

Allowing taxpayers to defer some payments will cost the Treasury about $300 million in 1994 and 1995, administration officials said. Tax experts calculated that the deferral would amount to just one-fourth of one percent of the total collected in tax increases.

Administration officials insisted that the idea had been under discussion for weeks, and was not a last-minute concession brought on by the condemnation of retroactive taxes that Senate Minority Leader Bob Dole, R-Kan., made in a televised speech after President Clinton's television address Tuesday night.

But they did not offer a public explanation as to why the proposal had not been mentioned publicly until yesterday.

A senior White House official said that Mr. Clinton had given his approval to the plan Tuesday afternoon in part to blunt criticism from those who opposed the tax increase's being made retroactive.

The official said the proposal was too small to merit mention in Mr. Clinton's television address and had won final approval from congressional conferees only yesterday morning.

Mr. Dole escalated his attack yesterday, noting acerbicly that even the draft constitution approved by the Russian Federation last month ruled out retroactive tax increases. Rep. Wayne T. Gilchrest, R-Md., went a step further and proposed a constitutional amendment to the same effect for the United States.

Mr. Dole called the retroactive tax increase "unprecedented," but Treasury Department officials listed more than a dozen examples in which taxes had been imposed retroactively.

In fact, it had been assumed by most tax experts since before the administration took office that any income tax increases would be retroactive, although for a time legislators had considered phasing the increases in by adopting one rate increase for this year and another for next year.

Many taxpayers long ago acted on this assumption and took the widespread advice of tax accountants to declare as much income as possible for 1992 rather than 1993, or to shift investments into tax-free instruments at the start of this year.

Tax lawyers and accountants who have been following the deliberations closely said they were caught completely off guard by the idea of letting taxpayers defer some of this year's tax increase, and said they assumed it was a last-minute response to the Republican criticism.

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