What the Tax Bill Does

The tax bill worked out by a Senate-House conference in a series of exhausting 16-hour sessions last week provides plenty of tax relief but relatively little in the way of long-term reforms. What started out as an effort to close tax loopholes turned into a tax-cutting binge designed to win friends for Congress in an election year.

In the short run, the bill will increase federal revenues. Eventually, however, as tax reductions take effect, federal intake will decline sharply, creating what one Treasury man calls "the revenue crunch of the '70s." The bill represents a Democratic attempt to win the affections of Nixon's middle-class constituency by offering ample benefits to middle-income taxpayers. A couple with two children and a $10,000 income, for example, will save $209 by 1973; the same family earning $25,000 would gain $172. Says one Senate Democrat: "What we are fighting for is suburbia." Former Budget Director Charles Schultze puts it another way: "When the chips are down on tax cuts, those who talked about priorities for pollution control and education and an end to hunger voted for beer and cosmetics and whitewall tires."

Among the key provisions of the proposed tax bill:

> 15% hike in Social Security benefits starting January 1, benefiting 25 million recipients.

> An increase in the individual personal income tax exemption from the present $600 to $650 next July 1, to $700 in 1972 and to $750 in 1973.

> A three-step rise in the standard tax deduction--now $1,000 or 10% of income, whichever is less--to $2,000 or 15% by 1973. The feature is designed to aid lower-and middle-income groups. > An additional $1,100 income exemption for those with annual earnings of $3,300 or less, aimed at removing 5,500,000 poor families from the tax rolls. > A new schedule for single taxpayers designed to narrow the gap between what they pay and what is paid by married people with the same income. Single people now pay up to 40% more.

> A maximum tax on earned income, reducing rates from the current maximum of 70% to 60% in 1971and 50% in 1972 and thereafter.

> A new "minimum tax" of at least 10% on all income over $30,000. One major loophole, tax-exempt state and municipal bond interest, is not affected.

Some tax breaks for businesses were also modified. The bill calls for a repeal of the 7% business investment tax credit, a reduction from 27 1/2% to 22% of the oil depletion allowance, and increased taxes on high-bracket capital gains. The bill puts a 4% tax on the investment income of foundations--a compromise between a stiff House bill and a nominal Senate measure.

House Ways and Means Committee Chairman Wilbur Mills said that the bill would produce an additional $6.4 billion in 1970, then drop to a negligible $288 million in 1971. By 1972, the government will be receiving $1.7 billion less than present revenues, and the loss will grow to $3.7 billion in 1973.

As finally worked out, the bill was far more sober than the free-spending "Christmas tree" measure conjured up by the Senate, with its $800 personal tax exemption. While it is more inflationary than President Nixon would like, the bill does postpone most of the giveaway provisions for two years, the period that Nixon considers crucial in the fight against inflation. Nixon is thus expected to accept the compromise.

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