Sen. Russell B. Long (D-La.), chairman of the Finance Committee, proposed yesterday that the government consider providing for the first time an automatic inflation adjustment for some federal taxes.
Long's proposal would break new ground in that three now is no inflation adjustment for taxes on individuals. Conservatives have complained that the impact of inflation increases the tax burden on earnings and capital gains.
Long suggested the more as a compromose President Carter might consider to help ward off a major cut in capital gains taxes that seems likely to be approved by the House Ways and Means Committee.
Carter currently is toying with a far more modest compromise that would provide some relief for home-sellers from capital gains taxes. But observers say it's unlikely to draw many votes in Ways and Means.
The administration had no immediate response to the suggestion, which was made during a hearing of the Finance subcommittee on debt management and taxation, chaired by Sen. Harry F. Byrd Jr. (Ind.-Va.).
Emil M. Sunley, a deputy assistant secretary of the treasury for tax policy, said the administration would "take a look at" the Long proposal, but did not provide any clue on whether the White House might adopt it.
Long said yesterday he hoped the proposal would provide "one way we can get out of the trap" on the capital gains issue so that "Democrats will be able to support the administration."
"I hope we'll be able to join together," he said, "on something the president can support."
The entry of the Senate Finance Committee chairman into the foray was regarded as an important development for the administration. Carter vehemently opposes a cut in capital gains taxes, but has few allies in fending one off.
If Carter accepted Long's offer of help, he would have a powerful ally to help sidetrack the capital gains bill. Long earlier had indicated the favored a capital gains cut. His proposal came as a surprise to most observers.
The proposal Long suggested would apply only to a narrow area of taxation - the method of calculating the portion of a capital gain that might be subject to the "minimum tax" imposed on high-income taxpayers.
However, the proposal, if enacted, could open the door to consideration of inflation adjustments for other parts of the tax code, including the personal exemption, the minimum standard deduction or even the tax rates themselves.
A capital gain is the profit a taxpayer makes from the sale of stocks or other property. Currently, half of a capital gain is subject to the regular income tax. So, in effect, capital gains are taxed at half rates.
In 1969, Congress enacted an extra tax, called the "minimum tax," to prevent persons with large amounts of tax-sheltered income from escaping payment of income taxes. The untaxed half of capital gains is subject to this tax.
Long's proposal would reduce the portion of a capital gain subject to the minimum tax by adjusting the purchase price of an asset upward to account for inflation - thus leaving less "profit" to be taxed.
Athough precise estimates were not immediately available, government tax analysts guessed the Long proposal would drain only about half the $1.3 billion in tax revenue that the Ways and Means measure would take.
The full minimum tax now brings in about $1.4 billion in revenue each year. Of this, about 86 percent comes from the untaxed portion of capital gains. The remainder presents modest taxes on various tax shelter income.
The Long proposal was the only new development at yesterday's hearing, the bulk of which was taken up by continuing debate on the capital gains issue and the Republican-backed Roth-Kemp bill, aimed at cutting taxes 30 percent.