The Senate Finance Committee voted yesterday to add to the House-passed tax bill $3 billion in relief for mostly high-income investors - triple that provided in the House version of the bill.
The proposal would combine $4.2 billion in reduced capital gains taxes with a new, milder so-called minimum tax - which the committee has not yet drafted - that would raise $1 billion from a few wealthy tax-shelter beneficiaries.
The capital gains cut would be accomplished by exempting 70 percent of a capital gain from the regular income tax, rather than the 50 percent excluded under current law. A capital gain is the profit from the sale of stocks for property.
The plan would slash taxes for an estimated 4.3 million investors, with about 35 percent of the $3 billion in relief going to persons in the $200,000 and up brackets. About 75 percent of the benefits would go to those making $50,000 and up.
In a surprise, the committee also voted to exempt from the new minimum tax deductions by oil producers for the amount of intangible drilling costs that exceed their oil income.
The provision would amount to a tax windfall of $30 million or more for a handful of wealthy independent oil and gas producers. The measure, sponsored by Sen. Lloyd Bentsen (D-Tex.), was approved by voice vote.
In addition, the panel approved a proposal that critics said was designed to benefit the E. F. Hutton Co., allowing states and localities a grace period on a 1977 Treasury ruling that barred refunding or some tax-exempt bonds.
The committee also approved a plan by Sen. John Danforth (R-Mo.) to impose an automatic surtax, or added tax, whenever federal spending grows by more than 2 percentage points over the inflation rate.
Danforth portrayed the proposal as a response to demands by voters in the current "taxpayers' revolt" to hold down government spending. The provision is expected to be dropped when the bill gets to conference.
The proposal to increase the House-passed cuts in capital gains taxes was part of a plan drafted by the committee's chairman, Sen. Russell B. Long (D-La.), to link the extra relief with changes President Carter wants.
Long has said if Carter accepts the extra capital gains tax relief, he will press the committee to reverse the House bill's dilution of the minimum tax and to add more tax cuts for low-income and lower-middle-income groups.
The Louisianan made clear before the vote yesterday that he expected Finance Committee members to support both proposals. However, the panel so far has been unable to agree on how to distribute more aid to the lower brackets.
Under present law, 50 percent of a capital gain is subject to the regular income tax. Of the rest, the first $10,000 is tax-free, and the rest is subject to a 15 percent minimum tax that is added to the regular income tax.
What Long's proposal would do would be to exempt 70 percent of a capital gain from ordinary income taxes, but then stiffen the minimum tax for a few investors with large amounts of tax-sheltered income who otherwise would escape.
The committee was unable to agree yesterday on what kinds of tax preferences and deductions to make subject to its new minimum tax. Besides that oil industry deductions exempted yesterday, Long wants to delete other taxes paid.
However, under the chairman's proposal, the minimum tax would be graduated, with higher rates for larger amounts of tax preferences, and would be converted to an alternative tax, with the taxpayer paying either that or the regular income tax.
Long's plan would exempt from any taxation the first $20,000 of the excluded portion of a capital gain. The next $40,000 would be taxed at 10 percent; the next $40,000 at 20 percent; and the remainder at 25 percent.
The committee also voted yesterday to reduce the capital gains tax rate for corporations to 28 percent, from the 30 percent in effect now.
Long's plan would reduce the maximum tax rate on a capital gain to just below 25 percent, down from the 49.1 percent top rate now paid by a handful of high income investors.
The bill passed by the House would leave the present 50 percent exclusion for capital gains intact, but would reduce the maximum tax rate on capital gains to 35 percent and exempt capital gains from the minimum tax.
Yesterday's decisions do not affect two other capital gains proposals contained in the House bill - a measure making the first $100,000 in profits from home sales tax-free, and a GOP plan to adjust capital gains taxes for inflation.
Long has hinted the hopes to delete both those provisions in the Finance Committee's version of the bill. Carter opposes all of the increased relief for capital gains, but has indicated he may accept Long's proposal.
The proposal to cut capital gains taxes was approved by a vote of 13 to 1. The only opposition came from Sen. Gaylord Nelson (D-Wis.). The liberal Democrats on the committee abstained rather than oppose Long.
In a new twist, the committee voted to make its reduction in capital gains taxes effective on Nov. 1, rather than the Jan. 1 date approved by the House. Long urged the earlier date to avoid discouraging would-be investors this year.
In other decisions yesterday, the committee approved a plan by Sen. Mike Gravel (D-Alaska) to grant tax-free status to state-chartered corporations that make stock available to citizens, as some firms offer to employes.