Chairman Al Ullman (D-Ore.) of the House Ways and Means Committee yesterday proposed a major change in the business part of the tax-cut plan President Carter has sent to Congress.
A Carter Treasury Department tax expert said the administration intends to resist the change, "in a friendly sort of way."
Ullman's committee is to begin hearings on the tax proposals today, with Treasury Secretary W. Michael Blumenthal and other administration economic policymakers as leadoff witnesses.
The Oregon Democrat wants to give business a tax cut in the form of an "employment tax credit," under which the government would in effect pay part of the wages of additional workers a business hires this year and next.
The idea is that this kind of tax cut would not just stimulate the economy in the general way all tax cuts do, but would be focused directly on creating jobs and reducing unemployment.
Administration experts think a tax cut is the best way to pep up the economy. The congressional Democrats are more inclined toward public works and other specific job-creating programs. Ullman regards his proposal as partly a compromise between these approaches.
The employment tax-credit idea also has support from the ranking Republican on Ways and Means, Rep. Barber B. Conable Jr. (N.Y.), and from a leader of the committee's lkiberal Democrats, Rep. Abner J. Mikva (Ill.).Because of this span of support, one committee aide predicted yesterday that the employment tax credit will become part of the bill, which Ullman hopes to have on the House floor by early next month.
The administration's plan is to give businesses a choice of two tax cuts. A business could either increase its investment tax credit from 10 to 12 per cent or take a 4 per cent credit on the Social Security taxes it pays for its workers.
Under the investment tax credit, the government in effect pays part of the cost of new machinery; businesses simply subtract a percentage of eligible machinery costs from the taxes they otherwise would pay.
The Social Security credit would have a similar lowering effect on labor costs.
Carter's economists estimated that the proposals would cost the treasury about $900 millionin the remainder of this fiscal year and $2.7 billion in fiscal 1978, which will start Oct. 1.
In addition to these business cuts, Carter proposed a mix of tax rebates, cuts and direct payments to individuals that Ullman thinks the committee will approve with relatively little change.
The investment tax credit is one of the largest and most controversial "tax expenditures" or special tax-reducing sections in the tax code. Defenders say it stimulates industrial modernization and expansion, and industry - capital-intensive industries especially - strongly supports it. Critics say it simply rewards businesses for making cpaital expenditures they would make anyway, and is just a windfall.
Ullman has supported the credit in the past, but said yesterday that at 10 per cent it is now high enough; it will cost the treasury an estimated $11.9 billion next fiscal year.
Under the proposed employment credit, a business would take its number of employees in 1976 as a base. For every employee added this year it could claim a credit. The credit would be 20 or 25 per cent - Ullman said he has not decided which - of the first $4200 in wages. The reason for taking $4200 is that employers already pay unemployment compensation taxes onthe first $4200 in wages for every employee, and would thus have the necessary records handy.
Ullman would make a similar credit available to employers next year, with this year's number of employees as the base.Then he would cut the credit off, on the theory that the economy would need no further stimulation.
The cost of Ullman's plan would depend on the number of new jobs created in the economy this year. With a 25 percent credit, 2 million jobs would cost about $2 billion and 3 million jobs about $3 billion. Some jobs will be created with or without the credit as the economy grows; Ullman's theory is that the credit would increase the total.
In another development yesterday, legislative director Andrew J. Biemiller of the AFL-CIO bluntly told the House Public Works Committee that the public-works part of Carter's proposed economic stimulus plan is "too little," and urged a $10 billion expansion.
Biemiller, who appeared in place of AFL-CIO President George Meany, who aides said had an eye problem, said afterward he thinks the committee will approve more than the extra $2 billion a year that Carter has proposed. "My guess is it will be a very substantial vote in this committee for more money than the President has asked," he said.