The Relief and Reform Bill

Committed to prompt extension of the 10% income tax surcharge. Senate Finance Committee Chairman Russell Long promised the Nixon Administration last summer that he would do everything he could to get it through. But Long's fellow Democrats were determined to bargain the surtax for tax reform, and the Louisianian could keep his promise to the President only by making another to them: in return for their votes on the surtax, he agreed to complete action on the House-passed reform bill and get it to the Senate floor by Oct. 31.

Last week Long kept his pledge with only hours to spare. He reported out a bill that provides relief to the country's 72.8 million individual taxpayers and brings long-needed reform to tax statutes. Lowering tax rates and increasing certain deductions, the bill would reduce individual taxes by $9 billion by 1972. Closing loopholes, it would raise an additional $6.5 billion in federal revenues by 1979. The loss is expected to be offset by normal expansion of the economy.

Relief Provisions. Although the Finance Committee measure stops short of the "relief and reform" bill passed by the House last August, it still represents a major step toward equalizing the federal tax burden. Using the House bill as a guide, the Finance Committee removed 5,200,000 low-income taxpayers from the tax rolls entirely, and voted rate reductions averaging 5% for those in all but the highest income categories by 1972. It also approved an increase in the 10% or $1,000 standard deduction now claimed by most taxpayers, lifting it by stages to a new maximum of 15% or $2,000 by 1972.

In addition, the Senate committee approved overdue aid for unmarried people, who now pay a disproportionately high levy. Single people can now pay up to 40% more in taxes than married people with the same income. Under the Senate bill, the difference would not exceed 20%.

Reform Measures. To cover the revenue loss, the committee approved extension of the surtax at a reduced 5% rate through June 1970, a measure expected to produce $3 billion. It also endorsed, though in a more relaxed form than the House, provisions eliminating some of the more glaring tax inequities:

CHARITIES. Going along with the House, the committee agreed to end the unlimited charitable deductions that allow some extremely wealthy people to escape payment of all or nearly all federal income taxes. This provision has some undesirable side effects. While it would prevent charitable contributions for purposes of reducing taxes, it would also remove the incentive for making gifts to schools, museums and other nonprofit institutions.

TAX CREDIT AND CAPITAL GAINS. Reaffirming an earlier vote, the committee repealed the 7% tax credit for business investment in machinery and equipment, but maintained the exemptions for the railroads and aircraft industry. Finally, it went beyond the Nixon Administration, but not as far as the House, in taxing the capital gains of upper-income taxpayers. Retaining the six-month period for which assets must be held to qualify for capital-gains exemptions, it denied the use of the 25% tax ceiling on such gains to people earning more than $10,000 in tax-preferred income.

OIL DEPLETION. Despite a last-ditch attempt by Chairman Long to hold the oil-depletion allowance at its present 27 1/2%, the Finance Committee bowed to public pressure to attack what many regard as the most egregious of tax shelters. Beaten, Long himself led a move to reduce the allowance to 23% -- a higher figure than the House-approved cut to 20% -- hoping to forestall an even greater reduction. The Senate version of the bill substantially reduces the additional taxes to be collected from the oil industry. Where the House bill would have raised the industry's taxes by $400 million a year, the Senate measure will raise only $155 million.

FOUNDATIONS. Even harder hit than the oil industry were the country's nonprofit foundations. They are easy political prey. Feared by some liberals because they represent aggregations of tremendous wealth over which there is no public control, the foundations are also mistrusted by conservatives because many of them support liberal causes with tax-free resources. In a move that was as political as it was economic, the Senate committee departed from the House bill to substitute a .2% tax on assets for a 7 1/2% tax on net investment income and capital gains. It also went far beyond the House bill in approving a provision requiring such "nonoper-ating" foundations as Rockefeller, Ford and Carnegie -- whose main activity is making tax-exempt grants -- either to dissolve themselves after 40 years or to begin paying regular corporate income taxes.

Nor did the committee encourage the establishment of new foundations to replace those that would be forced out of existence. One provision of the bill discourages gifts to foundations of appreciated property, such as stocks. Another hinders attempts by the owners of closely held corporations from creating foundations based on ownership of their shares. These measures would eliminate some of the abuses permitted under existing laws, but they would also seriously restrict the useful and valuable activities of foundations, making educational and scientific institutions increasingly dependent on Government financing.

Prospects for Passage. Though approved by the Finance Committee, the R & R bill faces obstacles before it reaches the President's desk. Oil-state Senators plan to fight for restoration of the depletion-allowance cuts on the Senate floor, and liberals will attempt to soften the restrictions on foundations. A conference committee will have to resolve the differences between the House and Senate versions of the bill. Still, ultimate passage of some kind of relief and reform bill is certain. Although it believes the Senate version will result in less short-term revenue loss, the Treasury Department has placed its imprimatur on both bills. Few Congressmen or Senators will be able to face their constituents in next year's elections unless they can show that they tried to lighten the taxpayer's load.

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