Toward the Biggest Tax Cut

Moving in fits and starts, and fending off more than 100 often spurious amendments, the Senate last week approved the largest tax cut in U.S. history. Coupled with a historic repeal of the 49-year-old oil-depletion allowance for all but the smallest independent oil producers, the $33 billion tax-relief bill must now be compromised with a similar, although smaller $21.3 billion cut approved by the House. Under heavy pressure from the White House to act speedily to spur the nation's depressed economy, congressional leaders hope to present President Ford with a final tax package this week--ten weeks after he presented his own proposals for a more modest $16 billion tax rebate.

Political Credit. Unless there is an unforeseen last-minute hitch, rebate checks on 1974 taxes should begin flowing to taxpayers in May. The extra cash for most Americans is expected to give the economy a substantial boost. Republican President Ford will be able to take political credit for pushing the Congress into relatively prompt action and the Democratic leaders to claim that they delivered a more effective tax stimulus than the President had requested.

Much of the Senate's final maneuvering on the tax bill was chaotic, as various Senators sought to push their own particular ideas on who in U.S. society needs the most tax relief. The first big fight was over the 22% oil-depletion allowance, which permits the nation's oil companies to avoid some $2.5 billion in tax obligations. The allowance has been an emotionally charged symbol of tax loopholes that has often blocked serious tax reform.

The Senate Finance Committee, chaired by Louisiana Democrat Russell Long, a veteran champion of the oil-depletion allowance, had produced a bill with no depletion repeal in it. Leading a successful floor fight to knock out the allowance for all but the smallest independent oil producers were Ernest ("Fritz") Rollings, a South Carolina Democrat with vice-presidential ambitions, and Massachusetts' Edward Kennedy. They were sharply opposed by Texas Democrat Lloyd Bentsen, an announced presidential candidate and friend of the oil producers. Certain that depletion was politically unsupportable in the face of soaring oil-company profits and that its repeal would eventually pass in some form. Long abandoned any prolonged fight to preserve this tax loophole. The Senate then cast preliminary votes to take away the protection from all but the "mom-and-pop companies" (those producing 2,000 bbl. per day or less).

With the depletion issue essentially settled, Senators rushed to amend the Finance Committee's bill. As the amendments piled up, Majority Leader Mike Mansfield moved adroitly to keep the Senate from snarling itself in endless debate over tangential items. He moved successfully to substitute his own package of tax cuts, which was relatively close to the original committee bill. That got the Senate moving again, and although there were other amendments, the bill that emerged included the following tax benefits:

>-A one-shot rebate on 1974 taxes totaling $10 billion. The rebates will range for most families from a minimum of $120 to a maximum of $240, decreasing as a taxpayer's income increases. The House-approved rebate is slightly smaller, ranging between $100 and $200 for a total cut of $8.1 billion.

> A choice of accepting the current $750 tax exemption for each dependent or taking a new credit of $200 per dependent on the final tax bill. The credit would mainly help taxpayers with incomes below about $18,500. The House sought to attain similar results by increasing the low-income allowance.

> A flat $100 payment to every person who receives a Social Security or railroad-retirement check. Some welfare recipients would also benefit. This is not in the House bill.

> A tax credit of up to $600 a year to cover the cost of baby sitters when this is necessary for a working parent to hold a job.

> A small across-the-board cut in the individual income tax rates of everyone on the first $4,000 of taxable income for 1975 and 1976. This will amount to $40 each year for most taxpayers. The House did not include a similar provision.

> A tax credit of 5% of the price of any newly constructed home purchased between March 13 and Dec. 31, 1975, up to a maximum credit of $2,000. The House did not include this.

> An "earned-income credit" designed to compensate for Social Security tax costs of low-income families. It affects only families with a gross income under $8,000.

> A $7.5 billion tax cut for businesses, mainly by increasing the investment tax credit. The Senate approved a 12% credit over two years, the House a 10% credit for one year. Both chambers agreed to lower corporate tax rates, the Senate by taxing the first $50,000 of income at 18% (instead of at the present 22% of the first $25,000) and income above that at the current 48%. The House extended the 22% rate all the way to the first $50,000 of income.

Tougher Task. Tax cuts are only one means to pump more money into the economy, and even as the Senate far exceeded the Administration's proposed tax-cutting incentives, other committees in Congress were proposing various spending measures that would serve the same purpose. But as the new House and Senate budget committees begin their first deliberations under the budget-reform law passed last year, they will grapple with some startling statistics. Charged with recommending limits on congressional appropriations, they could only guess at the combined budgetary impact of various proposed new programs and the tax cut. The best estimate of the House Budget Committee was that spending plans were running nearly $30 billion above Ford's proposals. With the Senate urging a $33 billion tax cut, the budget deficits for 1975 and 1976 were certain to exceed even the Administration's dire predictions.

The dismayed Budget Committee members discovered that unless the spending impulses of various committees are effectively curtailed, the 1976 budget deficit, estimated at $55.5 billion by the President, would balloon to about $93 billion. But the House Budget Committee is determined to keep that from happening. Tentatively, it decided last week to slash the Administration's $94 billion proposed spending for national defense by a substantial $4.8 billion. Its tougher task will come, however, when it turns to resisting the proposals of its colleagues in the Congress. If these new budget committees fail in their oversight task, warns one budget official, the spending totals will be "high enough to scare anyone in their right mind."

This file is automatically generated by a robot program, so viewer discretion is required.