The Senate Finance Committee agreed yesterday to raise the $750 personal exemption now granted taxpayers and their dependents to $1,000, beginning next Jan. 1, and hinted it will increase by as much as $2 billion other individual tax cuts recently approved by the House.
In a second and unprecedented action, the committee agreed to expand by $1.8 billion an existing system of tax relief to the working poor and to make those payments through the withholding system.
In some cases, that would mean a workers regular take-home pay would actually be greater than his or her gross weekly salary.
These changes came in the earned income tax credit for low-income families. The committee decided to increase the credit to a maximum of $600, up from the current $400 and to extend it to persons earning up to $12,000 a year.
The move would provide extra tax breaks for about 7.6 million "working poor" families, including 3.6 million of the 5.5 million who already qualify for the earned income credit.
The committee made its decisions informally, without recorded votes. Members stressed that all actions were tentative, although panel sources said they believed most of yesterday's decisions would remain intact when the tax bill is sent to the floor.
The actions were the first the panel has taken on the tax bill passed by the House. The committee had been delaying all decisions, pending agreement by House-Senate budget agreement by House-Senate budget conferess on the size of the tax bill.
Congressional budget makers reached & compromise on Wednesday that in effect would allow the Senate to add $2 billion to the $16.3 billion tax-reduction measure passed by the House. The Finance Committee has hinted it may also delay the effective date of some reductions to get around the budget limitations.
The extra $2 billion in tax cuts for individuals would effectively offset for low and middle-income taxpayers the increase in Social Security taxes and teh impact of inflation in pushing workers into higher brackets that will have occured between 1978 and 1979.
Most taxpayers still would be behind, since the tax cuts wouldn't offset the increased burden between 1977 and 1978. However, Sen. Russell B. Long (D-La.), the Finance Committee chairman, said Congress "just doesn't have the money" to do that.
The panel indicated yesterday that the extra $2 billion in cuts would come primarily by increasing the reductions in tax rates for individuals voted by the House. But it agreed to wait until Monday before approving the move, so staffworkers could compute the impact on various groups.
The committee's decision to raise the personal exemption to $1,000 for each taxpayer and his or her dependent effectively ratified what the House did earlier. Assuming the Senate goes along, the provision would be certain to be approved by a House-Senate conference committee.
Along with increasing the personal exemption to $1,000, the committee also agreed to repel the present $35-a-person "general credit" now granted all taxpayers. Taxpayers now may choose between $35 a dependent or 2 percent of the first $9,000 in income, whichever is higher.
The committee's actions yesterday amounted to mixed news for the Carter administration. One of the president's principal objections to the House bill was that it did not provide enough tax relief for the poor. The increases in the earned income credit would offset than somewhat.
At the same time, however, the panel's decision to raise the personal exemption dashed any hopes that the administration might win its fight to replace the $750 exemption with a $240-a-person tax credit, which would have skewed the benefits more toward the poor.
Secretary of the Treasury W. Michael Blumenthal had asked the committee to include Carter's proposal in the Senate version of the tax bill after the House turned him down. However, the plan had been widely criticized both by conservatives and liberals.
The action involving the earned income credit would make major changes in current law. The law now allows working poor parents to reduce their total taxes by 10 percent of their first $4,000 a year in wages, to a maximum of $400, with smaller breaks for those earning up to $8,000.
What the Finance Committee did yesterday was to agree, first, to enlarge the size of the credit to 10 percent of the first $6,000 in earnings - for a maximum of $600 - and then to extend the scaled-back tax breaks to families earning up to $12,000 a year.
The changes would add to the number eligible for the earned income credit, some 4 million persons earning between $8,000 and $12,000 a year. However, it would not provide extra relief for those earnings less than $4,000 a year.
The House merely made the existing $400 credit permanent and voted to allow taxpayers to figure their benefits from tables, rathern than having to compute them by themselves. The House measure would not increase the tax relief workers in this category.
Although the changes in the earned income credit would take effect Jan. 1, the system of distributing the tax break weekly, directly through workers paychecks, would not begin until next July 1, to give the Internal Revenue Service time to lay down ground rules for it.
The procedure would work like the withholding tax system, except in reverse. Workers would receive the tax credit in installments, through a reduction in withheld taxes. Those who did not earn enough to pay income taxes would receive an extra cash payment as part of their cheks.
Employers required to make these adjustments would be "reimbursed" regularly by the government by deducting the earned income credits they provide from the income or Social Security taxes they pay on behalf of their employes.