Incentive & Inequities

Chin set, Dan Reed last week rapped his House Ways & Means Committee to order and set it to work. Although there was a long, grueling job ahead, New York's Congressman Reed was in a satisfied frame of mind. Reason: the committee was beginning the final phase of its complete revision of the U.S. Internal Revenue Code, a pet project of Republican Reed, begun back in the summer of 1951. For six weeks the committee will meet in closed session to agree on changes in the code. Major changes approved last week: P: The entire code is to be reworded ("levied, collected and paid" will be changed to "imposed") and its sections rearranged and renumbered in more logical order. (Moaned one Washington tax lawyer: "There goes a life's work out the window for me. Now I won't be able to name the section on anything.") P: Normal tax and surtax will be combined in a single rate, eliminating the need for computing both. P: An unmarried, widowed, legally separated or divorced taxpayer supporting certain members of his or her family will be entitled to "head of the family" status, thus giving the taxpayer the full income-splitting tax benefits now allowed married couples. This will save such taxpayers a total of about $50 million a year. P: "Double taxation" of dividends (i.e., the corporation pays taxes on its income and then the individual pays taxes on the dividends) will be gradually reduced. The first year the new code is in effect, the first $50 of an individual's dividend income will be exempt; the second year, $100. On the remainder, the taxpayer will be allowed to subtract 5% of his dividend income from his tax bill during the first year the law is in effect, 10% the second year, 15% thereafter. This will save dividend-collecting taxpayers $240 million the first year the law operates, at least $750 million after the second year.

The dividend provision was by far the most important of the week's tax announcements. While it was presented chiefly as a step to erase "inequity," its practical purpose is to provide an incentive for investment in business, and, consequently, to encourage a faster growth of the economy. Another "incentive" revision agreed upon by the committee's and the Treasury Department's experts and ready for approval: a proposal to permit business to make big early deductions for depreciation of new plants and equipment.

There is political dynamite in the "business incentive" nature of the revisions. Some Democrats are sure to charge, and some taxpayers are sure to believe, that the whole revision is designed to help business and ignore the little man.

Dan Reed's big project will undoubtedly remove some inequities and will provide increased incentive for investment. But it would be a mistake for anyone to assume that the revisions will eliminate all inequities. In a statute as complicated as the U.S. Internal Revenue Code, erasing one inequity often causes two others to show through.

This file is automatically generated by a robot program, so reader's discretion is required.