Goodies for Everyone

A cash rebate for everyone on 1974 federal income tax payments. A new credit for each member of all families paying taxes for 1975. A cash gift to most retired workers and other Social Security beneficiaries. New tax breaks for the poor. An added incentive for businesses to expand in 1975 and 1976.

Those are among the most attractive financial Easter eggs that were packed into a bulging basket of tax goodies last week and delivered to the White House by members of Congress just before they left on a holiday recess. The most sweeping tax cut in U.S. history was worked out during 2% days of arduous argument by a conference committee, which struck an equitable compromise between House and Senate versions of the bill. The conferees settled on a gross tax reduction of $24.8 billion -- about $8.8 billion more than President Ford had sought but $8.3 billion less than the Senate had approved.

Reluctantly Signed. After three days of throwing out hints of a possible veto, President Ford took television time to announce that he had reluctantly decided to sign the bill -- and he did so in front of the TV cameras. He called the overall size of the tax cut "within reason" and said that he was signing it because "our economy needs the stimulus and support of a tax cut and needs it now." Ford complained of "a lot of extraneous changes" of tax law in the bill and said that it failed to give "adequate relief to middle-income taxpayers. But, he said, "I am by no means sure that this Congress would send me back a better bill -- it might be worse." He urged Congress to "let the worst of these provisions expire" after one year.

Practically, Ford had little real choice, since both the political and economic risks of a veto would have been too high. A Harris poll revealed last week that more than 80% of the public already lacked confidence in Ford's antirecession program; that rating would not have improved if Ford had introduced further delay on a tax stimulus that he had called for. While the House might conceivably have sustained a veto, any new bill would similarly have been open to countless amendments and could have taken a month or two to pass. At best, Ford might have picked up some conservative backing, but he would have angered the controlling Democrats in Congress and most economists as well. Ford's own Council of Economic Advisers had urged him to sign the bill.

The President was, however, properly concerned about proposed congressional spending plans. Combined with the tax cut, they could produce a hair-curling federal budget deficit of $100 billion or more for the next fiscal year (see ECONOMY & BUSINESS). Ford said that any such deficit would be "too dangerous to permit," since it would "threaten another vicious spiral of runaway double-digit inflation." He vowed to resist any attempt by Congress to pass spending programs that would produce a deficit any higher than $60 billion.

Apart from the tax reductions, which will provide a strong stimulus to the economy in the last half of this year, the bill includes a small but significant revenue-boosting provision: repeal of the 22% oil-depletion allowance for all of the big oil-producing companies (those pumping more than 2,000 bbl. per day). By 1980, only those companies producing less than 1,000 bbl. per day will retain the allowance. And starting in 1981, the depletion rate itself will be gradually reduced, over four years, to 15%. A historic and overdue tax reform, the changes will cost the oil companies some $1.7 billion in tax payments.

The major features of the bill include:

REBATES FOR 1974. Anyone who paid less than $100 in 1974 taxes will get all his money back. Those paying more than that will have 10% of their tax returned, up to a maximum of $200. At an adjusted gross income of $20,000, the rebate will begin to be scaled down from $200, reaching a minimum of $100 at incomes of $30,000 and above. Couples, however, cannot get more than a $200 rebate, even if they filed separately. Checks should begin flowing to individuals within 45 days. The rebate will reduce taxes by $8.1 billion.

DEPENDENT CREDIT. The conference committee decided to allow all taxpayers to subtract from their final bill $30 for themselves and for each member of their family. This is in addition to the $750 exemption for each member. The provision will apply only to 1975 taxes, unless Congress extends it. Cost to the Government: $5.2 billion.

MAXIMUM STANDARD DEDUCTION.

For persons who do not itemize their deductions, current law allows standard deductions of up to $2,000, depending on size of income. This will be raised to a maximum of $2,300 for single persons and $2,600 for couples filing jointly. Enacted only for 1975 taxes, this and the following provision will produce a combined tax savings of $2.6 billion.

LOW-INCOME ALLOWANCE. To adjust for inflation and keep poorer people from having to pay any tax, the low-income allowance or minimum standard deduction will be raised from $1,300 to $1,600 for single persons and from $1,300 to $1,900 on joint returns. This too applies only to 1975 taxes.

WITHHOLDING RATES. The bill requires that payroll-withholding rates be adjusted by May 1 to reflect the 1975 tax decreases. For most wage earners, employers will deduct between $3.50 and $10 a week less than at present.

EARNED-INCOME CREDIT. To offset the rising Social Security payroll tax for working poor people, a credit will be given against 1975 taxes. It will amount to 10% of a taxpayer's first $4,000 of income, but no more than $400. If the credit is larger than the tax owed, the taxpayer will get a check for the difference. Above $4,000, the credit will be gradually reduced, and will phase out completely at $8,000. Only taxpayers who have dependent children will be eligible for these payments. That rules out single people, childless couples and older working poor people who have grown children. This credit will cost the Government $1.5 billion.

SOCIAL SECURITY PAYMENTS. Persons who draw a Social Security check, get railroad retirement payments or receive benefits for the aged, blind and disabled will be sent a $50 bonus this year, beginning in early summer. This should help elderly people living on fixed incomes. Cost of this one-shot gift: $1.7 billion.

HOUSING CREDIT. Aimed at spurring the sluggish housing industry, this provision will subsidize anyone who buys a previously unoccupied house or apartment between March 13 and Dec. 31. The buyer will be allowed to subtract from his 1975 tax bill 5% of the purchase price, up to $2,000. Construction of the house must have begun by last Tuesday. Though this provision may help reduce the backlog of 600,000 unsold new homes and condominiums, it could hinder the sales of older houses. Cost to the Treasury: $600 million.

CORPORATE INCOME TAX. A tax cut that applies only to 1975 income will primarily help small businesses. The tax on the first $25,000 of income will be cut from 22% to 20%, and on the next $25,000 it will decline from 48% to 22%. Above $50,000, the tax will remain at the present 48%. Cost: $1.5 billion.

CHILD CARE. Taxpayers who must pay for day care for dependent children in order to hold a job are now allowed to deduct up to $4,800 a year for the cost of such care if they earn $18,000 or less. The tax bill permits the full allowance to be claimed on an income of up to $35,000, beginning with 1975 taxes. It also permits scaled-down allowances on an income of up to $44,600. The cost to the Government: $100 million.

INVESTMENT TAX CREDITS. Most companies and self-employed persons (doctors, lawyers, farmers) are now allowed to subtract from their taxes 7% (4% for utilities) of the cost of new machines and other equipment. The bill will increase this to 10% for 1975 and 1976. In general, for the businessman to qualify, the equipment must have been purchased after Jan. 21 of this year. The two-year cost: $3.35 billion.

FOREIGN INCOME. The bill seeks to reduce the tax advantages for corporations whose income earned abroad has been used to reduce their U.S. income taxes. It also cuts back the benefits gained by oil companies whose royalties paid to foreign governments have been credited against their U.S. taxes. The changes in the bill are complex and relatively insignificant. They will produce a gain in tax revenue of $270 million.

Over all, the tax bill is much more favorable to lower-income taxpayers than was Ford's original proposal for a $16 billion, two-step rebate on 1974 taxes. The congressional bill gives only 14.8% of the individual tax benefits to persons with incomes above $20,000 a year. Those earning from $10,000 to $20,000 will get 41.6% of the benefits, while those making under $10,000 will receive 43.5%. Compared with businesses, individuals get by far the larger share of the tax cuts: 73%.

In the tough and painful bargaining between the House and Senate that finally produced the bill, the Senate yielded mostly in reducing the size of the cuts it wanted. The final amount was only $3.5 billion more than that approved by the House. But the Senate conferees, notably at the stubborn insistence of Louisiana Democrat Russell Long, chairman of the Senate Finance Committee, succeeded in including the credit on new homes, the $50 Social Security payment and the retention, at least temporarily, of oil depletion for smaller companies. None of those items were in the House bill.

Both chambers exercised restraint, considering the political temptations toward generosity whenever a tax cut is contemplated. Oregon Democrat Al Ullman, who succeeded Wilbur Mills as head of the House Ways and Means Committee, chaired the conference committee and earned praise as a moderating influence.

How effective is the final tax package? While arguing that it should have been even larger, Walter Heller, a member of TIME'S Board of Economists, says that the bill is "an excellent beginning" and "substantially improves the prospect for a vigorous upturn in the second half of this year." He especially approves the bill's emphasis on helping less affluent taxpayers, considering it a historic shift by the Congress. Another board member, Otto Eckstein, also sees a healthy stimulus for 1975 but worries that there will be little continued impact in 1976. Most experts seemed to agree with the general view expressed by a third member of the TIME board, Arthur Okun: "It's just what the doctor ordered to get rid of a recession."

Whether that will prove to be the case is, of course, uncertain. Economists have not been notably proficient over the past year at foreseeing the timing and severity of the recession. Nor has President Ford, who only six months ago was urging a tax increase, not a tax cut. But, despite some ill-advised provisions, the Congress has moved with unaccustomed speed and zeal to produce a tax package worthy of a trial in the marketplace. By signing the bill, the President has avoided a divisive battle with Congress that might have stirred a hot political debate but would have done little to stimulate an overdue recovery from the nation's worst recession since the Great Depression.

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