President Carter's tax writers are drafting a sharply pared-back version of his earlier tax-revision package containing sirable tax cuts to ward off an economic slowdown late next year and a handful of modest, but still significant, changes in present law.
The proposals, still in tentative draft form, are scheduled to go to W. Michael Blumenthal, the Secretary of the Treasury, for initial decisions today or Friday. Sources say depending on Blumenthal's reaction, the package could be sent to the President this weekend.
The series of recommendations has been compiled into several "alternative" packages. Insiders say the options include everything from a skeleton proposal limited essentially to a few tax-reduction measures to a larger measure that includes several key "reform" provisions.
No matter which Carter ultimately chooses, sources say it's almost certain to be a major retreat from the comprehensive "tax reform" program the administration was considering only a few weeks ago. The President has scrapped plans for a larger bill to ease business fears.
Nevertheless, outside tax experts say several of the proposals now being considered for the truncated package would themselves amount to signifleant changes in the present code. One well-known tax analyst, informed of the new proposals, described the plan as "respectable."
Although initial decisions have not been made yet, sources say the peackage almost certainly will include several Carter tax staples, such as replacing the $750 personal exemption with a tax credit, reducing the "marriage penalty" and cracking down on the three-martini lunch.
And experts say that despite opposition from the Secretary, the White House still may follow through on Carter's campaign promise to end the tax-subsidy for exporters and the ability of U.S. firms to defer taxes on foreign-source income.
At the same time, however, the Treasury is almost certain to bow to congressional opposition and drop earlier plans to end the special tax treatment of capital gains - profits from the sale of stocks or other assets - that was the centerpiece of the previous package.
Tax drafters still are not sure how, if atall, the administration will deal with the capital gains question and other controversial issues. The Treasury has in mind proposing a second tax-revision package in 1979, but details are uncertain.
Tax planners are undecided over how large a tax cut to provide for individuals and business next year. Drafters still are using earlier estimates of a $15 to $20 billion tax cut, with two-thirds going to consumers and the rest to corporations.
Carter has said he plans to decide the size fo the tax cuts late in December, when the administration is better able to assess the economic outlook for 1978 and 1979. However, sources say it's likely the cuts will not be trimmed below the previous estimates.
The administration his ben giving conflicting signals on its tax plans recently. Blumenthal told the Senate Banking Committee last Friday that the tax-revision program would be virtually scrapped in favor of quick action on a tax cut next year.
However, Jody Powell, the President's press secretary, told reporters this week Blumenthal was expressing "his personal thoughts" when he made that statement. Powell indicated reform would be an integral part of the package to be unveiled in January.
The change in the $750 personal exemption would replace the present writeoff with a tax credit that would shift proportionately more of the benefit to lower-income families. The credit proposed previously would amount to $210 in 1970, rising to $250 a dependent by 1981.
The provision to reduce the socalled "marriage penalty" would allow working spouses a special deduction of up to 10 per cent of their first $6,000 in earnings. The step would lessen, but not end completely, the present overtaxation of families with two wage-earners.
The move to crack down on the three-martini lunch would restrict deductions for business expenses by denying current writeoffs for yachts, hunting-lodges and other entertainment, and limiting deductions for business meals to 50 per cent of their actual cost.
The two provisions involving tax breaks for firms doing business abroad include a $12 billion export subsidy for Domestic International Sales Corporations, and the law allowing U.S. firms to postpone payment of taxes on foreign-source income almost indefinitely.
Critics have challenged both breaks as unjustified, and Carter pledged during the campaign to end them entirely. However, Blumenthal has been uring the President to go slowly for fear of damaging business confidence and worsening the trade deficit.
Still undecided is whether the administration will include its plan to reduce the present "double taxation" of profits and corporate dividends by allowing shareholders a credit for a portion of the taxes already paid by the company.
The plan is heavily favored by congressional leaders and top Treasury tax officials, but could prove quite costly. Critics argue it also would be complex and unwieldly. Sources speculate Carter may decide to include it, if only to please key members of Congress.
Along wit hthose provisions, sources Along with those provisions, sources say these steps also are likely, though not finally decided:
Scrapping most of the earlier plan to eliminate existing deductions for individuals to help simplify the tax code. The two Carter still is most likely to propse ending: The deductions for state taxes and for payment of gasoline taxes.
Jettisoning previous plans to tax workers' fringe benefits and transfer payments, such as welfare and Social Security checks. Sources say the administration may propose taxing some minor fringe benefits, but won't seek major changes, on grounds that it's too controversial.
Gradually reducing the present depletion allowance for hard minerals (not gas or oil), which now ranges from 22 per cent for sulphur to 5 per cent for oyster shells. One plan would cut the allowance to 15 per cent - leaving the writeoff for coal virtually untouched.
Requiring banks to withhold taxes on interest paid to depositors. The move, designed to prevent savers from cheating on their bank interest, is supported by Sen. Russell B. Long (D-La.), chairman of the Senate Finance Committee, but opposed by the banking industry.
Providing a subsidy to states and localities to replace the present tax exemption for interest paid on state and municipal bonds. State and local governments then would issue taxable bonds, if they chose, with the subsidy making up for the higher interest rates they would have to pay.
Repeal of the tax break provided in last year's tax act that enables employers to deduct the cost of providing prepaid legal services for workers, such as they do for health insurance premiums. The measure has been criticized as unnecessary and inflationary.
A gradual reduction of the special writeoff for mutual savings banks and savings and loan associations. The deduction would be pared to 20 per cent, from the present 40 per cent over five years. It also would be extended to credit unions.
A provision requiring states to use the same method as the federal government in determining the amount of foreign income earned by corporations that can be taxable under state law. The move would change the law to follow a tax treaty with the United Kingdom.