TAXES: Priorities

Almost everybody agrees that taxes should be cut next year. Almost nobody agrees on what taxes should be cut first. This week the Research and Policy Committee of the Committee for Economic Development presented some ideas. The main C.E.D. recommendation: top priority should be given to individual income-tax cuts, with relatively greater percentage reductions in the top brackets.

About 3% of U.S. taxpayers earn $10,000 or more a year. Yet this small slice of the tax economy carries 36% of the nation's income-tax burden (see chart). Some high-salaried executives, C.E.D. suggests, have lost incentive because "what is left after taxes is not worth the effort." The C.E.D. thinks that "high rates of taxes make it more difficult for the individual to accumulate funds for investment, thus penalizing small business, [which] ordinarily can make use of outside financing only at excessive cost . . . The objective of this type of reduction would be to stimulate investment in a desirable manner by a reduction of tax rates at income levels where individuals can afford the risk of losses that accompany uncertain undertakings."

Among other recommendations:

¶ Reduce the corporate income tax from 52% (it is scheduled to go down to 47% next April). Noting that the current rate was adopted to finance the Korean war and twice extended, C.E.D. maintains it "should not be allowed to become embedded in the tax structure."

¶ Lower taxes on corporate income from foreign sources in order to encourage U.S. investments abroad.

¶ End the tax on intercorporate dividends and the penalty on consolidated returns for closely affiliated corporations.

¶ Permit actors, authors and others with widely fluctuating incomes to calculate taxes on a five-year average income.