Break-Even Simplicity

For multitudes of taxpayers, Secretary of the Treasury George P. Shultz confessed last week, April 15 has become a day of "agony"; Form 1040 and its accompanying schedules are so befuddling that more than half the nation's 75 million taxpayers pay professionals to fill them out. He proposed a major simplification that, he said, would enable almost all "average taxpayers" to make out their returns with no help.

Shultz would eliminate several widely used deductions and exclusions--gasoline taxes, sick pay, the first $100 of dividends received--and permit deductions for medical and casualty expenses only if they exceeded 5% of gross income. A blanket $500 miscellaneous deduction would be substituted. Form 1040 itself would be replaced by a new form 10405, on which a taxpayer could report income received from interest, rent and capital gains without having to fill out the maze of additional schedules now required.

The average taxpayer, said Shultz, will about break even on these changes, or perhaps save a few dollars. He is supposed to "come out about where he would have [in previous years] if he had kept the proper records and reported his deductions correctly"--which many filers now fail to do. Some taxpayers would get additional help: Shultz proposed federal income tax credits for elderly homeowners who pay heavy local property levies and for middle-income parents who send their children to private schools.

Simplification, however, is only one aim of the Administration's tax program; another is to squeeze more tax out of those rich people who still make only small payments or none despite the minimum tax enacted in 1969. Under Shultz's plan, the wealthy could no longer reduce taxes by writing off losses on unprofitable investments against current, unrelated income; the losses could be deducted only from eventual profits from the investments. Also, Shultz would make a complicated change in the way the wealthy compute their taxes. At present, they simply exclude from reported income half their long-term capital gains, their percentage depletion on oil and mineral investments and income earned abroad. Under the Administration's proposal, these sums would have to be added to adjusted gross income. The minimum sum on which taxes would have to be paid would then be calculated by subtracting personal exemptions and $10,000 from the total and dividing the remainder by half. Shultz figures that these changes would raise an additional $800 million in taxes a year from people who have incomes of $50,000 or more.

The Shultz program is already under fire from reformers who think that the tax system should redistribute much more income from rich to poor. They note that Shultz proposed no changes in the stated tax rate on capital gains or in estate and gift taxes. House Ways and Means Chairman Wilbur Mills says that the proposals do not go far enough, and the package is sure to face a stiff fight when the committee takes it up later this year.

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