Stripping the Stimulus

After months of tumult and argument, the Administration's tax-cut bill cleared its final major congressional hurdle last week. But the Tax Reduction Act of 1977 that was approved by House-Senate conferees bears only a passing resemblance to the measure that the White House sent over in January. Missing from the legislation were two key proposals for stimulating the economy: the $50 per person rebate on 1976 taxes and an increased investment tax credit for business. The original bill would have resulted in new tax cuts for business and individuals totaling some $22 billion over a two-year period. The conference committee version calls for lowering taxes by $30.2 billion--but only $15.5 billion of that represents any new saving for taxpayers; the rest comes from the extension of corporate and individual tax cuts first enacted in 1975.

The primary stripping of the bill, of course, was done by the President himself, when he abandoned his request for the rebate plan. Last week the congressional conferees knocked out what could have been the most important benefit for business: a chance for corporations to take an investment tax credit of 12%, rather than the present 10%, on the value of new plant and equipment. The Senate had kept this provision in the bill, as an alternate to tax credits on newly hired workers, but House Ways and Means Committee Chairman Al Ullman argued successfully in conference that the extra 2% would not spur much investment, because corporations are already flush with cash.

Tax Break. That leaves as the only general tax break for business the so-called jobs credit--a provision that the Administration is unhappy with, for good reason. Under this regulation, for the next two years most corporations would get a tax savings of $1,092 for each new worker they hire after their payroll has grown 2% from the previous year. The credit can be used only by companies that are expanding, and the maximum benefit to any one company is $100,000; thus the credit is of little use to the biggest companies that hire the most workers. Indeed, the Administration estimates that the credit will help employers of only about a third of the nation's labor force--not enough to make a substantial dent in the jobless rate.

The bill will cut taxes moderately for some 47 million lower-and middle-income people by generally increasing and simplifying the standard deduction for taxpayers who do not itemize deductions. Under present law, the deduction ranges from $1,700 to $2,400 for single people, from $2,100 to $2,800 for married couples. The bill replaces those ranges with flat deductions of $2,200 for singles, $3,200 for the married filing jointly. About 2.1 million single people who have an adjusted gross income of $13,750 a year or more would have their taxes increased an average of $54 a year each by the change. All married couples using the standard deduction would have their taxes cut.

Spending Parts. The bill, which Carter probably will sign after it passes the full House and Senate this week, contains several other items of general significance. It renews funding for another two years of the Federal Government's "countercyclical" revenue-sharing program. This plan passes money out to states and cities when the national unemployment rate tops 6%. Also, the bill clears the way for many people who were sick or who worked abroad last year to file for refunds on the 1976 taxes they have already paid. A law passed by Congress last September eliminated the right of workers to exclude from taxes up to $100 a week in sick pay, raised taxes on Americans working abroad, and made both changes retroactive to Jan. 1, 1976. The new bill strikes out the retroactivity clause.

As the tax bill trundled toward the President's desk, Congress was also working on the spending parts of Carter's economic stimulus package. Last week a House-Senate conference committee approved a bill that, among other things, would appropriate $9.3 billion for job-creating programs, including public service employment and youth-training plans. That still leaves the question of whether what is left of the stimulus program is enough to cut the nation's jobless rate below 7%. Administration policymakers insist that it will. But if the economy does keep recovering it will be as a result of its own vitality rather than of any major prod from Washington.

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