Long Batting For Carter

The Carter Administration's much-beleaguered tax-cutting plans survived perhaps their toughest test last week in the Senate Finance Committee and emerged reasonably intact. They were saved not by the President but by Committee Chairman Russell Long of Louisiana, who drew on all his parliamentary skill. Fresh from a midweek lunch of bacon-and-tomato sandwiches with Carter at the White House, Long trotted Council of Economic Advisers Chairman Charles Schultze before the committee for an unusual second appearance to argue for the Administration's $50 tax rebate. In the end, the committee voted to keep the rebate, restore the increase in the investment tax credit that the Administration wants, and report later this month a bill closer to the President's intentions than the one that passed the House earlier this month. Its main provisions:

REBATES. By a 10-to-8 vote along party lines, the committee decided to back the President's $50 rebate plan. Republicans tried to substitute a permanent 10% tax cut for individuals, and several Democrats were none too sure that the rebates would do much good. But after Schultze repeated the Administration's arguments that the economy still needs a quick boost, and that permanent tax cuts would interfere with Carter's aims of drafting a long-range tax reform and balancing the budget by 1980, the Democrats closed ranks. On the Senate floor, a few Democrats are likely to join all 38 Republicans in voting against the rebate, but it probably will still pass. Said Abraham Ribicoff of Connecticut, voicing the majority mood: "I'm skeptical. But this is a new Administration and they ought to be given a chance."

INVESTMENT CREDIT. The committee voted overwhelmingly to give businessmen at least a chance to take a tax credit of 12% on purchases of new plant and equipment, v. 10% now. The increase is badly needed: sluggish business investment is probably the biggest drag on the economy, and while the rise in the credit would be small, it has become a symbolic issue in the eyes of many executives. But the House, in a misguided effort to spur employment, turned it down in favor of a "jobs tax credit": 40% of a newly hired worker's wages, up to a maximum of $1,680. The House put a ceiling of $40,000 on the credit any one employer could take, thus effectively limiting the benefits to small businesses, which do not do the most hiring. Democrat Lloyd Bentsen of Texas came up with a compromise that the Long committee bought: give businessmen a choice of the higher investment credit or a modified jobs credit (25% of wages up to a maximum of $ 1,050 paid to some, not all, new workers, with no $40,000 ceiling). An Administration spokesman tepidly endorsed the idea as the "least objectionable" compromise.

STANDARD DEDUCTIONS. The Finance Committee voted for a flat standard deduction of $2,200 for single taxpayers, $3,200 for married couples (under present law, the deduction ranges from $1,700 to $2,400 for singles, $2,100 to $2,800 for the married). The House had set deductions of $2,400 for the single, $3,000 for couples. That, however, could have increased the so-called marriage penalty: two people living together could claim deductions totaling $4,800, while if they married and filed a joint return they would be held to $3,000. Long would not hear of it. He growled, "Nowadays it's tough enough to get people married without putting bigger taxes on it." He pushed through a plan that will reduce, though not eliminate the marriage penalty. That should please Carter, who has urged people "living in sin" to get married.

SICK PAY. In a surprise move, the committee voted to let workers during 1976 continue to escape taxes on as much as $100 a week of the pay they earned while off the job because of injury or illness. The Tax Reform Act passed last October had made such earnings fully taxable; it also greatly increased taxes on Americans working abroad--and made both provisions retroactive on income earned earlier in the year. The Finance Committee voted to make those provisions apply only to income earned in 1977 and later years. "Retroactivity is against the spirit of the American Constitution," boomed New York Democrat Daniel P. Moynihan, who helped lead the move. People who are now filling out Form 1040 probably would be well advised not to claim the sick-pay exclusion: it is not at all certain that the Moynihan proposal will become law. Should it do so, taxpayers who have already sent in 1976 returns and paid extra tax on sick pay or income earned overseas would have to file amended returns to claim a refund.

The committee's moves on rebates and the investment credit, however, seem likely to survive votes on the Senate floor and in Senate-House conference and become part of what will be called the Tax Reduction Act of 1977. That would represent a significant, though close and qualified victory for Carter--and for Russell Long.

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