House-Senate conferees agreed yesterday on the major elements of a compromise tax cut bill as Congress moved toward adjournment.
After a day of closed-door meetings, the two sides reached accord on proposals to raise the $750 personal exemption for individuals to $1,000, repeal the deduction for state and local gasoline taxes, and allow home sellers over age 55 a one-time tax exemption on $100,000 of their profits.
They also agreed on a plan for cutting capital gains taxes that would exempt 60 percent of the profits from the sale of stocks or other property from the regular income tax, rather than the current 50 percent. And they approved a proposal to dilute the "minimum tax" on wealthy investors.
At the same time, the conferees also voted to reduce the corporate tax rate from 48 to 46 percent beginning next year, and to liberalize the 10 percent investment tax credit to allow companies to offset 90 percent of their other taxes, rather than 50 percent.
The partial agreement came after the conferees met privately in separate caucuses late Friday and throughout yesterday, appearing only for three brief public sessions to announce their decisions. The private meetings were designed to speed the decision-making process.
The two sides were reported still at odds over how to distribute the additional tax cuts for individuals that would result from further rate cuts.
The committee also scrapped a proposal to tack onto the tax bill controversial college tuition tax credit legislation, killing it for this session even though it was passed by both houses.
The conferees were expected to dilute or eliminate a Democratic version of the GOP-sponsored Roth-Kemp tax bill. The Democratic version, sponsored by Sen. Sam Nunn (D-Ga.), would slash taxes by $142 billion between 1980 and 1983 if the government met stringent spending targets.
The committee worked into the wee hours as the conferees appeared unable to agree on several minor provisions. However, expectations were that they would complete work in time for the two houses to approve the bill early today.
There was no formal word from the White House on whether President Carter would sign the bill. Although he has threatened a veto, the conferees appeared to have met most of his objections, and administration officials seemed satisfied with their decisions.
The conferees voted to retain a provision passed by both houses that would grant a tax break to the heirs of the Gallo wine estate. However, they scrapped a Senate-added $5 billion tax break that would have benefited Texas International Airlines and other firms.
At the same time, the conferees also reached tentative agreement on a compromise version of a proposal designed to soften a 1976 law that had sought to impose higher taxes on U.S. citizens working abroad.
The compromise would scrap the previous system for computing taxes of Americans living overseas, and instead allow them direct deductions for education, living costs, housing expenses and other items, plus a $5,000 exclusion for those living in high-inflation areas.
The measure, to be considered as a separate bill and rushed through the two houses as a companion to the tax bill, would cost the Treasury $381 million, compared to $500 million for a more generous House version.
The conferees also gave President Carter two token victories on minor tax "reform" proposals. The Senate voted to repeal business deductions for the cost of maintaining yachts and hunting lodges and to tax unemployment benefits of those earning $20,000 a year or more.
However, the conferees refused to approve a Senate-passed measure that would have denied business deductions for club dues and membership fees.
Treasury Secretary W. Michael Blumenthal told reporters that the changes in the compromise tax bill were "reasonably close to most of the president's target. It looks a lot better than it did."
The final version of the bill also would double the present tax credit for political contributions by individuals, raising it to $50 for single persons and $100 for couples.
The early round of decision-making included agreement by the conferees to retain two other provisions affecting individuals: making the child-care tax credit available for babysitting fees paid to grandparents, and giving widows credit for equity in farms and small businesses in whose operation they participated.
However, the conferees also scrapped several provisions in an effort to trim the bill down from the $29.1 billion price tag approved by the Senate. The House bill would have cut taxes $16.3 billion.
Included among the measures dropped from the bill were an extra $500 personal exemption for disabled persons, a House-passed proposal that would have limited deductions for medical insurance premiums and non-prescription drugs, and an increase in the tax credit for the elderly.
The conferees also killed proposals that would have continued the general jobs tax credit, provided an inflation adjustment for capital gains taxes, imposed a surtax if federal spending exceeded targets and made foreigners who buy and sell U.S. farmland pay capital gains taxes.
The conferees were expected to adopt some version of the administration's proposed "targeted" jobs credit, which would limit the tax break to companies that hire youths from inner-city areas, the handicapped and other disadvantaged persons.
The formula for cutting capital gains taxes was a compromise between the Senate's proposal to exempt 70 percent of a capital gain from taxation and a House provision to simply reduce the maximum rate. The compromise proposal would lower the maximum rate on capital gains to 23 percent, compared to 35 percent for the House bill and 49.1 percent now.
The conferees scrapped several provisions in an attempt to trim the bill to below congressional budget ceilings, including a Senate proposal that would have allowed small business a rapid three-year depreciation write-off on the first $25,000 in purchases of machinery and equipment.
However, the conferees approved proposals passed by both houses that would make permanent the 10 percent investment tax credit for business, allow corporations to use it to offset 90 percent of their other taxes instead of 50 percent, and allow a full write-off for spending on pollution-control equipment.
The bill also would lower from 30 to 28 percent the capital gains tax rate for corporations, which companies may pay in lieu of regular income taxes on capital gains.
By late yesterday afternoon, the conferees still had not decided what to do about cutting corporate tax rates. Both houses have voted to trim the corporate rate from 48 to 46 percent next year, but the Senate added further reductions for later years that House members are expected to oppose.