Calling for Raises

When asked their stand on taxes, all too many presidential candidates have refused to say much more than that they ought to go down. Not some of this year's Democratic hopefuls. Edmund Muskie, George McGovern and Hubert Humphrey have either proposed or endorsed surprisingly detailed tax reforms that would cancel many benefits now enjoyed by U.S. companies, sew up loopholes used by the rich, and probably increase the tax bill of almost everyone with an income above $12,500. The Democrats are making tax reform a big, sharp campaign issue.

In a position paper, Muskie proposed reforms aimed at increasing federal revenues by $14 billion annually. Humphrey and McGovern joined eight other liberal Democrats in co-sponsoring a Senate bill, which was introduced by Wisconsin's Gaylord Nelson, to expand revenues by $16 billion.* Both that bill and Muskie's proposals call for reductions or other reforms in local property taxes, an extremely popular goal first proposed by Richard Nixon. But the Democrats have replaced the controversial alternative being considered by the President--the so-called value-added tax, which would result in higher consumer prices--with populist soak-the-rich solutions.

The campaigning Democrats would dismantle some recently adopted Nixon programs that are designed to create jobs by stimulating business investment and exports. The Nelson bill would eliminate the present rule that allows corporations to claim depreciation on plants, machines and other capital goods faster than they actually lose value. Estimated revenue gain: $3 billion annually. In addition, both the Nelson bill and the Muskie paper call for an end to the DISC program (for Domestic International Sales Corporation), which allows companies to set up special firms to handle exports and defer taxes indefinitely on some of their profits.

Shooting Ducks. The tax reformers also take aim at the favorite tax shelters of the rich, treating them like so many shooting-gallery ducks. The oil-depletion allowance would be reduced by 20% or more under both Democratic plans, and municipalities would be encouraged through federal subsidy to issue taxable bonds instead of the now popular tax-exempt variety. There would be new restrictions on tax deductions for farm losses, capital gains and large charitable contributions. Inheritance-tax bills would go up indirectly: estates would have to pay capital-gains taxes on property and securities (for wealthy people, at least 35% of the increase in value over the original purchase price) as well as regular income taxes on everything else.

In addition, Muskie proposed converting Social Security taxes from a flat rate to a progressive rate, comparable to income taxes. That would reduce the annual contribution of some 63 million low-and average-wage earners, but increase it for about 8,000,000 others. The higher earners would not only pay at a stepped-up rate but also would be taxed on all income, rather than on only the first $9,000 as at present. (Last week Louisiana Democrat Russell Long predicted that his Senate Finance Committee will soon increase the taxable base from $9,000 to $12,000 and raise Social Security benefits by at least 10%.)

On his own, McGovern has also proposed a tax raise on the top 20% of federal taxpayers--generally families that earn $ 12,000 or more. The funds would be used to provide minimum-income grants of up to $1,000 each for lower-income people. Aside from promising tax relief for property owners, the other candidates have not been as specific as McGovern on how the new tax revenues should be used. But with all the urgent social, environmental and employment demands facing the nation, that will hardly be a problem.

* McGovern earlier published a position paper endorsing even broader changes than those in the Nelson bill (TIME, Feb. 14). He still stands behind his original ideas, but found this plan acceptable.

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