Senate Finance Committee Chairman Russell B. Long (D-La. yesterday called for a $3 billion tax cut for high-income investors - triple that provided in the House version of the tax bill.
Long's plan would lower capital gains taxes and replace the "minimum tax" with an "alternative tax" that would hit fewer high-income taxpayers, but hit them harder.
The proposal would cut taxes for almost 4.3 million taxpayers, about a third of them in the $200,000-and-up income brackets. A capital gain is the profit from the sale of a stock or other property.
Long also hinted that his committee may scrap part of the House reductions in corporate tax rates and substitute a faster depreciation write-off for new equipment, as suggested by Federal Reserve Board Chairman G. William Miller.
Long said he had found "substantial interest" in the Mibler plan among Democrats. In testimony last week, Miller said the move would spur more business investment than would a cut in the corporate tax rate.
Neither the Miller proposal nor Long's plan to cut capital gains taxes was put to a vote yesterday. The panel is waiting for House-Senate budget confrees to decide on the size of the overall tax-cut bill.
Long's proposal to reduce capital gains taxes would amount to four times the $1 billion cut provided in the House-passed bill. However, about $1 billion more would be offset by new revenues from his "alternative tax."
Long also reiterated that the committee probably will scrap a House-approved provision to allow home-sellers to take the first $100,000 of their profits tax free. The relief would have gone mainly to those in the $20,000-and-up income brackets.
Long's proposal would reduce capital gains taxes by making a smaller proportion of the profits from the sale of stocks or other assets subject to the regular income tax.
By law, 50 percent of a capital gain is subject to the regular income tax.
Of the rest, the first $10,000 is exempt from taxation, and the remainder is subject to a 15 percent "minimum
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Long's proposal would exempt 70 percent of a capital gain from the regular income tax - a major liberalization - but then stiffen the minimum tax for investors with large amounts of tax-sheltered income to prevent total tax avoidance.
Under a plan Long described yesterday, the first $20,000 of the excluded portion of a capital gain would be tax-exempt, the next $40,000 would be $40,000 at 20 percent, and the remainder at 25 percent.
At the same time, the tax would be converted to a genuine alternative tax. That is, taxpayers would pay either their regular income tax or the alternative tax, whichever were greater - not simply add the minimum tax to their income tax.
The effect of the Long proposal would be to give most capital-gains recipients a substantial tax break beginning in January, but to crack down on a relatively few high-income investors with sizable deductions and tax shelters.
To illustrate the impact of Long's proposal, staff members recomputed tax returns filed by two high-income taxpayers, which the Treasury earlier had cited as examples of abuses of present law.
In one case, the taxpayer with $7.2 million in salary and investment income, who paid an effective tax rate of 10.2 percent under present law, would pay 14.7 percent under Long's proposal, compared to 7.1 percent under the House bill.
However, another case involving a taxpayer with $237,000 in salary and investment income showed he would pay a 7 percent rate under Long's proposal, compared to 7.3 percent under present law and 1.7 percent under the House bill.
Long also said he intended to do away with a provision in present law that requires high-income taxpayers to count for purposes of the minimum tax any state and local taxes that exceed 60 percent of their income.
Long said the provision, written into the present minimum tax law to prevent abuses, no longer would be needed under his new alternative tax plan. Treasury officials appeared unenthusiastic about Long's proposal.