If your income comes primarily from a salary, wages, or odinary investment income, you would be in line for a tax reduction.
But if your income is mostly money that now gets special tax treatment or preference, Uncle Sam would take a bigger tax bite.
Those would be among the principal results of major revision of the tax laws if the President accepts the basic recommendations of his tax experts.
As Economic Council chairman Charles L. Schultze recently revealed, the tax package would include an overall net tax cut of an amount not yet determined. It would be the second proposed by the Carter administration.
One proposal being seriously considered is the taxation of capital gains at normal tax rates as part of a plan to end the "double taxation" of dividends. But once current and lower rates on capital gains were ended, a reduced rate schedule on all individual income would go into effect.
Presently, the top corporate tax rate is 48 per cent, while the individual rate schedule runs from 14 to 70 per cent of income. Capital gains held for more than nine months are reduced by 50 per cent, with the balance taxed at an individual's normal rate. Effectively, there is a tax ceiling of 35 per cent on capital gains.
Taxes at all levels amount to about one-third of the gross national product. According to a compilation by Brookings Institution expert Joseph A. Pechman, $445 billion in taxes was collected in the U.S. in 1975, of which $279 billion were federal and $166 billion state and local.
President Carter already has held two long sessions on taxes with key economic advisers. He derected them to examine the entire range of items which now either escape taxes or get special treatment.
He will meet again with them in a week a session which is expected to result in a selection of the chief options. Administration sources say a detailed proposal will be ready for Congress by the end of August.
Officials involved in this process are the President; Treasury Secretary W. Michael Blumenthal; the assistant Treasury secretary for tax policy, Lawrence Woodworth; Economic Council Chairman Charles L. Schultze; and presidential assistant Stuart Eizenstat.
"The President is going to make the decisions himself," one of the experts noted, "and that's why it will be impossible to predect what comes out until he evaluates the differing points of view and decides on a program."
The present tax laws, although "reformed" a couple of times in recent years, remain complicated. And the "effective," or real, rates are much lower than those spelled out in the tax tables. Instead of a top individual rate of 70 per cent, for example, the average effective rate in top brackets is thought to be about 40 per cent.
Carter's directive to his tax experts was to stress three things - simplification, fairness and measures to stimulate economic growth.
"I would personally like to see for once a tax reform program that truly simplifies matters so that the largest number of a taxpayers possible . . . can know exactly where they stand on their taxes and can prepare their own taxes returns without having to (get) assistance," Blumenthal told a recent press conference.
One step in this direction has been taken as part of the first Carter tax reduction this year, a component of the economic stimulus package which boosted the standard deduction, making it more attractive for many than itemizing deductions.
A second major reform proposal, revealed earlier this year by Carter, will be the substitution of a flat $240 tax credit per person for the existing personal exemption of $750 and the present tax credit of $35.
The fixed-dollar credit - the same for all income levels - benefits those at or below the $20,000-$25,000 income level at the expense of those above that dividing line.
"When you take those two things - the higher standard deduction and the credit replacing exemption - you're done a lot of simplification," said an administration tax expert.
In effect, if the Carter proposal for the $240 tax credit goes through, most taxpayers will be able to check income against a table listing various numbers of dependents and pick out their tax. 'Then all they have to do is to subtract the amounts with-held, and for many taxpayers, that's it, "a Treasury man said.
But simplification alone doesn't meet the objectives of basic tax revision. To do something about the inequities of the present tax law which fails to tax all income in the same way and to stimulate economic growth through investment, the administration must change the rules.
The Carter team's basic approach appears to be this: To accelerate investment and increase capital must be cut. But given the realities of political life, business taxes can not be reduced without some net tax reduction for individuals.
To offset this potentially large loss and to meet the goal of "fairness," or equity, income in many categories that now escapes the tax collector has to be added to the tax able base.
A major policy decision revealed by Schutze and confirmed elsewhere in the Carter administration is that there will be no attempt to totally offset revenue losses with revenue gains.
The principal source of "balancing out" will be the elimination of favored tax treatment for capital gains, which for fiscal 1978 will cost the Treasury an estimated $8.7 billion, mostly benefitting high-income individuals rather than corporations.
Treasury experts are running through a list of "tax expenditures" appended to the federal budget, which shows the whole gamut of tax losses arising from special exclusions, treatment or deferrals.
In addition to capital gains, there are many other possibilities, but some appear to be untouchable, including the corporate aurtax exemption ($4.2 billion), exclusion of unemployment benefits ($2.5 billion), and exclusion of Social Security payments(about $5 billion). But Carter has told his aides to examine all possibilities and spell out for him what can be done.
For example, despite the political difficulty in doing away with the tax loophole for municipal bond interest, Secretary Blumenthal strongly favors some reform in this area. One method he is toying with is to include municipal-bond interest in the list of "preference" income against which a minimum tax is charged.
"If you have $100 million, and you put it all in municipals, you don't pay any taxes at all. My own view would be that that is wrong," Blumenthal said in an interview.
A highly controversial item is the $6 billion lost to the tax collector through deductability of mortgage interest by home owners, who also get $5 billion in deductions for property taxes paid on their homes.
OMB director Lance told reporters last week that his personal "hope" was that mortgage interest would remain tax deductible. "After all, we're a nation of home owners," he said. But he acknowledged that one proposal under active consideration is a "cap" on the amount of interest that could be deducted.
That might primarily affect wealthy homeowners who maintain two or more residences.
To get the views of affected groups in the economy, Blumental met last week with representatives of small and big business and with tax lawyers and technicians. He will meet this coming week with labor unions, public interest groups and representatives of state and local governments.
One recommendation that the President is expected to get from his advisers is a ceiling on the amount that can be deducted for mortgage interest. This might be done by disallowing interest on mortgages above a certain dollar figure.
Other revisions to boast revenue that are likely to get serious consideration from the Carter group include a tightening up of depletion allowances for minerals other than oil, the special benefits that still exist for the foreign income of so-called domestic international sales corporations, and deductions for state gasoline taxes.
Beyond that, there is under consideration the highly technical issue of whether the corporation and individual income tax structures should be "integrated," wholly or partially as an incentive for expanded business investment.
That would be one way of reducing the business tax burden and eliminating the so called "double taxation of dividends." But it is not the only option under discussion - other possibilities for achieving the same purpose are some forms of accelerated depreciation, investment credits or reductions in rates.