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THE NEW YORK TIMES, SATURDAY, DECEMBER 20, 1969

Tax Bill Conferees Agree on a Plan

Continued From Page 1, Col. 7

benefits, to which President Nixon has objected. A costly increase in the minimum monthly benefit payment to $100, which was in the Senate's version of the tax bill, has been eliminated.

The Administration also objects in principle to reducing taxes through increasing the personal exemption.

Representative Wilbur D. Mills of Arkansas, who is chairman of the House Ways and Means Committee and also of the conference committee, said he had "no idea, frankly" whether the President would veto the bill. He argued that it would not be inflationary.

The ranking Republican on the Ways and Means Committee, Representative John W. Byrnes of Wisconsin, expressed his personal satisfaction with the bill but described it as "certainly not veto-proof."

Exactly when the bill would reach Mr. Nixon was uncertain, although there seemed to be little doubt that both the House and Senate would pass it by overwhelming margins, probably Monday.

The tax relief provisions of the bill would take effect in a series of steps beginning next summer and extending through 1973.

The tax reductions would average 11.7 per cent, when all the provisions are fully in effect in 1973.

The percentage decrease would be greater for those with incomes below $15,000 and smaller for those above $15,000.

The relief provisions are these:

THE PERSONAL EXEMPTION. The first increase in the exemption, to $650, would take effect for only the last half of 1970. The effect of this would be the same as making the exemption $625 for the whole year. However, withholding rates would be changed July 1, 1970, under the bill, to reflect the termination of the 5 per cent surtax, which would occur on the same date--four month before the Congressional elections of November, 1970.

THE LOW-INCOME ALLOWANCE. This provision will take the form of a minimum standard deduction, which everyone may use regardless of what percentage of his income it represents. The minimum standard deduction would be set at $1,100 under the bill in 1970 and would decline to $1,050 in 1971 and to $1,000 by 1972. The low-income allowance was made bigger in the earlier years to hasten the tax reductions for low-income families, rather than making them wait for the increases in the personal exemptions before they realized the full amount of tax relief that the conference committee intended.

THE STANDARD DEDUCTION. This would be increased from its present rate of 10 per cent of income or $1,000, whichever is lower, in three steps, beginning in 1971. For 1971, the rate would be 13 per cent or $1,500; for 1972, 14 per cent or $2,000, and for 1973, 15 per cent or $2,000.

TAX RELIEF FOR SINGLE PERSONS. A special new tax rate schedule, the same as the one contained in the Senate's version of the bill, would be used by all single persons, beginning in 1971. It would keep single individuals from ever paying more than 20 per cent more tax than married couples with the same taxable income. At present, single persons can pay as much as 40 per cent more.

THE MAXIMUM TAX ON EARNED INCOME. This provision, eagerly sought by the Administration, is aimed at providing tax relief for high-income individuals, such as top corporation executives and lawyers and doctors, who work for their money. It would provide a top tax rate of 60 per cent on earned income in 1971 and a top rate of 50 per cent thereafter. At present, the tax rate goes past the 50 per cent mark at $52,000 of taxable income.

The ceiling tax rate on earned income--as contrasted with "unearned income" such as dividends, interest, rents and so on--was contained in neither the House nor the Senate versions of the original tax bill.

Offset Provision

Under this offset provision, the amount of earned income subject to a top rate of 60 or 50 per cent would be reduced, dollar for dollar, for every dollar of tax-preferred income in excess of $30,000 that an individual had.

In this sense, the ceiling tax rate on earned income would supplement the minimum tax, which is also contained in the bill, in imposing somewhat heavier tax treatment on those who have large quantities of income that is untaxed now because of various preferential provisions of the tax laws. 

On the minimum tax, the conference committee adopted the Senate's approach.

The tax, at a flat rate of 10 per cent, would be applied to all income in excess of $30,000 from a list of types of income deemed to be tax-preferred.

The list of tax preferences would be almost the same as that contained in the Senate bill, with a couple of minor exceptions and one major one. Excluded from the list would be the deductions for intangible drilling costs that oil and gas operators are allowed to take, whereas other industries have to capitalize these costs over a period of years.

The effect of the exclusion of these costs from the preference list was lessened, however--and the minimum tax was thereby made tougher on oil and gas operators--by the addition of another provision on the minimum tax, relating to the depletion allowance.

The depletion allowance is on the list of preference items subject to the minimum tax, to the extent that it exceeds the actual cost of an oil facility, on a per lease basis. But in calculating this cost, the intangible drilling expenses may not be included.

The interest from the bonds of state and local governments was not included in the list of items subject to the minimum tax, nor was it in the identical list of items that must be offset against earned income that is subject to the new top tax rate for earned income.

The conference committee also dropped from the bill the other major provision relating to these so-called municipal bonds--a program whereby the Federal Government would have subsidized the interest rates on some of these bonds, which would then have been taxable. This proposal was fought by bond dealers and by most of the nation's Governors and Mayors.

Deductions for the present market value of property that has increased in value and is donated to charities were also left off the list of preferences subject to the minimum tax. This was a victory mainly for the nation's institutions of higher education, which had feared they would receive smaller donations if the increased value were taxed.

The Social Security provisions of the bill include, essentially, only the 15 per cent increase in benefits effective Jan. 1, which was previously approved by the House. President Nixon wanted the benefit rise limited to 10 per cent and the effective date postponed until April 1.

Among the various other Social Security changes that the Senate approved, only one was adopted, and in a modified version.

The conference committee agreed that no state should be permitted to take into account the first $4 of increase in Social Security benefits in determining the amount of welfare payments to be received by those who get both Social Security and welfare. This provision would expire by next June 30, by which time Congress is expected to have enacted basic changes in the welfare system.

Here are the highlights of other major items of tax reform contained in the conference version of the bill:

TAX TREATMENT OF MINING INDUSTRIES. The depletion allowance for the oil and gas industry was cut from 27 1/2 per cent to 22 per cent and the allowance for all other minerals that are currently at more than 22 per cent, such as sulphur and uranium, was reduced to 22 per cent. Molybdenum, currently at 15 per cent, was raised to 22 per cent, the only such increase. Most minerals now at 15 per cent were reduced to 14 per cent, except for gold, silver, copper, oil shale and iron ore. The Senate provisions that would have eliminated a traditional limitation on the use of the depletion allowance were knocked out of the conference version of the bill.

The depletion allowance for foreign operations of oil companies was kept at its present level, a victory for the oil industry, but a change, which the industry had fought, was made in the operations of the foreign tax credit. 

CAPITAL GAINS. Wall Street, among others, won a victory when the period for which property must be held before it comes eligible for the favorable capital gains tax rate was kept at the present six months, rather than being extended to a year. But it suffered a defeat on the issue of the alternative capital gains tax rate--which is a flat 25 per cent rate. Only the first $50,000 of capital gains in any year could be taxed at this rate, under the conference committee's bill. If the individual involved is in a tax bracket higher than 50 per cent, the rest of his gains would be taxed at half his tax rate. 

THE TAX TREATMENT OF FOUNDATIONS. Foundations would be required to pay annually an excise tax amounting to 4 per cent of their income to defer the Government's costs of auditing and policing them. They would be required to pay out annually, for the charitable or other purposes for which they were organized, an amount equal to 6 per cent of their income.

A new set of provisions was written by the conference committee relating to the extent to which foundations may own controlling interests in business corporations. Foundations would be permitted to finance voter registration drives, subject to limitations that are generally similar to those contained in the original House version of the tax bill. 

No more than 25 per cent of the financing could come from any one tax-exempt organization; the organization's activities would have to be nonpartisan, not geared to any individual election, and carried on in at least five states. 

Foundations would be permitted to attempt to influence Government decisions on broad problems that might be treated through legislation but not to lobby on matters where legislation has already been proposed. 

REAL ESTATE. The industry that would find its taxes increased the most by the bill is the real estate industry, and only a few of the tax-law changes affecting it were in dispute between the House and Senate versions. Undisputed was the reduction in depreciation on new nonresidential housing to one and a half times the "straight line" depreciation rate, instead of two times, as now. On used building of all kinds, whereas the House would have disallowed all accelerated depreciation and the Senate provided for some, the conferees provided one and one-fourth times straight line for used residential buildings with 20 years or more of remaining life.

No accelerated depreciation would be permitted on used nonresidential buildings. A new provision providing for "recapture" of excess depreciation--that is, its taxation as ordinary income when the depreciated building is sold--was written by the conferees. 

INVESTMENT CREDIT. This tax credit, amounting to 7 per cent of the cost of machinery and equipment, is to be repealed retroactively effective April 18, 1969. Three major exceptions to repeal that were added in the Senate--covering the first $20,000 of any business's investment in equipment, investment in depressed areas and investment in watershed development--were eliminated by the conference committee. On of the many spcial transitional rules adopted by either the House or Senate--one designed to make a Mobil Oil Corporation plant in Joliet, Ill., eligible for the credit--was eliminated. 

INCOME AVERAGING. An individual with a sudden, large increase in his income in one year could treat it, for tax purposes, as though it had been earned over five years. 

At present, the upsurge in income must amount to 33 1/3 per cent more than the taxpayer's average income in the preceding five years for the averaging provision to be usable. This would be cut to 20 per cent. Income from capital gains and gambling would be included in the types of income subject to averaging under the conference version of the bill. 

MOVING EXPENSES. Direct costs of moving that were not reimbursed by an employer could be deducted under the bills passed by the House and the Senate, subject to specified limitations. The deductible indirect costs include such matters as commissions on the sale of

Table of Yearly Impact Of the Tax Changes

WASHINGTON, Dec. 19 (AP)--This table shows the revenue impacted, year by year, of the tax changes approved today by the Senate-House conference committee.

Column A gives the cost of tax relief; B is revenue from tax reform; C shows tax receipts from the surtax and excise levies as they are phased out; D shows the net effect on the Federal budget, with net revenue loss indicated by minus sign. The figures, in millions of dollars, are approximate.

[[5 column table]]
| |A|B|C|D|
|1970..|1,441|3,645|4,270|6,474|
|1971..|4,900|4,415|  800|  315|
|1972..|7,250|4,650|  800|-1,800|
|1973..|9,100|4,950|  400|-3,750|
|1974..|9,100|5,285|  -  | 3,815|
|Long run..|9,100|6,620|-|2,480|

What Tax Bill Would Do

WASHINGTON, Dec. 19 (AP)--Following are the major income tax relief provisions, as they take effect year by year, agreed on today by the Senate-House conference committee:

1970 
Personal exemption rises from present $600 to $650 effective July 1, making the full-year exemption $625.

Low-income allowance of $1,100 takes effect as of Jan. 1.

1971
Personal exemption remains at $650 for full year. 

Low-income allowance drops to $1,050.

Standard deduction rises to 13 per cent with $1,500 ceiling.

Rate for single taxpayers is reduced to not more than 20 per cent above the rate for married couples.

Maximum marginal rate--the rate paid on the highest bracket of income -- drops from the present 70 per cent to 60 per cent on earned income.

1972
Personal exemption rises to $700.

Low income allowance drops to $1,000.

Standard deduction rises to 13 per cent and the maximum is increased to $2,000.

Maximum marginal tax rate drops to 50 per cent.

1973 and Thereafter
Personal exemption rises to $750.

Low-income allowance remains at $1,000.

Standard deduction rises to 15 per cent with ceiling remaining at $2,000.

Transcription Notes:
missing "Table of Yearly impact of tax changes" chart. to note, the word "spcial" in INVESTMENT CREDIT is not a mistype ---------- Reopened for Editing 2024-03-05 15:23:00