The Congress: Long Step Toward a Tax Cut

A major tax-cut bill, with a few bows toward reform of the basic inequities in the U.S. tax structure, was finally headed toward the floor of Congress last week.

As approved by a 19-4 vote of the House Ways and Means Committee, the bill calls for an $11.7 billion cut to take effect over the next two years. Of that, about $9.5 billion would be in individual income tax slashes and about $2.2 bil lion in corporate tax reductions.

Two-thirds of the individual income tax cut would apply to 1964 income, the rest to 1965. Present rates range from a minimum of 20% of taxable income in the lowest brackets to an excessive 91% in the highest; the Ways and Means Committee bill would change that range to 14%-70%. The income tax rate now paid by some 51 million Americans would be cut by an average 18.7% (see box).

The range for individuals is higher than the 14%-65% that the Kennedy Administration had originally asked for. But Treasury Secretary Douglas Dillon appeared before Ways and Means early last week, approved of the committee change. The smaller reductions, Dillon felt, were necessary because the committee, under the chairmanship of Arkansas Democrat Wilbur Mills, had already dumped many other Administration proposals aimed at increasing tax revenues.

In much the same way, the Administration had originally asked for a corporate tax-rate cut of 5%, from the present 52% to 47%, starting next year, but is now willing to go along with the Ways and Means version that calls for corporate taxes to be lowered to 50% in 1964 and 48% in 1965.

In all, Kennedy originally recommended tax cuts totaling some $13.6 billion. But the Administration also figured on offsetting $3.3 billion of that by closing tax loopholes and correcting inequities. Wilbur Mills, a longtime advocate of real, radical, start-from-scratch tax reform, was unwilling to go along with the Administration's halfway measures. The result was ironical: under Mills, the Ways and Means Committee approved provisions that would save only about $700 million, as against the $3.3 billion the Administration had hoped for. Items:

∙ CAPITAL GAINS. Kennedy had asked that the capital gains tax on profits from the sale of assets held for one year or longer be reduced from a maximum of 25% to a maximum of 19.5%. (At present, gains on assets held six months or longer are considered longterm; shorter-term gains are taxed at regular income rates.) The committee decided instead on a new rate of 21% and required that assets be held two years or longer to qualify. The committee turned down a Kennedy request that the amount of an estate that has resulted from appreciation of assets be taxed as capital gains when the estate passes to an heir.

∙ STOCK DIVIDENDS. Kennedy asked repeal of provisions that now allow a stockholder 1) to exclude from taxable income the first $50 of dividends received in a year, and 2) to subtract 4% of dividends beyond that amount directly from his tax bill. The committee repealed the 4% deduction, but it doubled the $50 exclusion.