The Democratic majority on the House Ways and Means Committee indicated yesterday it plans to start work next week on a compromise tax-cut bill containing a $1 billion reduction in capital gains taxes, despite threats by President Carter that he would veto the measure.
The announcement was made by Rep. Al Ullman (D-Ore.), the panel's chairman, after the administration failed during a two-week grace period to come up with a counterproposal that couldmuster support from the committee's 52 Democrats, who are split over the issue.
The decision to go ahead with the legislation means that Carter effectively has lost his bid to head off a cut in capital gains taxes, which the administration contends would be wasteful and inequitable. Capital gains are the profits from the sale of stocks or other assets.
Ullman warned the administration yesterday it had better accept the compromise or "it will be very difficult to get a (tax) bill through this Congress." He said Carter was "not well-advised" three weeks ago when he lambasted the compromise at a televised news conference.
Ullman made his remarks following a meeting with Treasury Secretary W. Michael Blumenthal over the status of the tax cut bill. Committee Democrats had given the administration until today to try to head off the compromise plan, but Blumenthal said he had no new proposal.
The compromise, put together by Rep. James R. Jones (D-Okla), a conservative, essentially would scrap Carter's $20 billion bill tax reduction and "reform" plan and replace it with a smaller $15 billion bill containing a tax cut for middle-income families and tax breaks for small business.
On capital gains, the Jones bill would provide about half the tax relief for investors offered in a GOP-backed plan by Rep. William A. Steiger (R-Wis.). The Steiger bill would trim the maximum tax rate on capital gains to 25 per cent, from 49 per cent now. Jone would set it at 35 percent.
Ullman said yesterday he will formally introduce the Jones compromise this week and schedule a mark-up session for next week. He predicted if the panel starts work on Tuesday, it could complete work on the entire tax-cut bill "within a week."
The administration has vigorously opposed both the Jones and Steiger measures as primarily benefitting the rich, but so far has been unable to dissuade the coalition of Republicans and conservative Democrats on the panel who are backing the Jones proposal.
Reducing capital gains taxes effectively would roll back key elements of the "tax reform" acts of 1969 and 1976, and would run counter to Carter's campaign pledge to repeal the special tax treatment for capital gains. Only half a capital gain is now subject to tax at all.
However, Blumenthal conceded yesterday the administration had been unable to come up with an alternative that seemed acceptable to a majority of the committee's Democrats, and Ullman had indicated earlier he would not take the tax bill to the floor if he feared it might be defeated.
The Secretary confirmed yesterday he was willing to consider cutting capital gains taxes for homesellers and persons who invest in new business ventures, but indications were that it would be unlikely to attract many votes in committee. He said the administration had no other proposals.
Apart from the provision reducing capital gains taxes, the Jones compromise would provide $10 billion in cuts for middle-income taxpayers and $5 billion in tax relief for business.Carter originally asked for a $25 billion cut, but trimmed this to $20 billion as an anti-inflation gesture.
The Jones proposal includes these elements:
An average of 5 to 6 per cent reduction in tax rates for individuals-primarily benefitting those in the $15,000 to $40,000 a year brackets by raising the personal exemption now allowed all taxpayers and their dependents to $1,000, from $750 a person now.
A tax cut for business by reducing the corporate tax rate to 46 per cent, from 48 per cent now, and imposing a lower, graduated income-tax schedule for firms earning less than $100,000 a year. At present, companies earning less than $50,000 pay a lower tax rate.
Make permanent the present 10 per cent tax credit allowed business for investment in new plant facilities, and permit firms to use it to offset 90 per cent of their tax liability instead of the present 50 per cent. The investment credit would revert to 7 per cent without this.
Enact a handful of relatively minor Carter tax "reform" proposals, including repealing the present federal income tax deduction for state and local gasoline taxes. Jones said yesterday he is willing to allow some House floor votes on other key Carter "reforms."
The administration had proposed two weeks ago a stripped-down version of its original tax package contraining $20 billion in tax-reform proposals. But the compromise bid fell flat, in part because Carter did not include a capital gains cut.