Brushing aside administration opposition, the Senate Finance Committee yesterday voted 16 to 0 to report out this year a bill that would cut taxes $25 billion to $30 billion, effective Jan. 1.
Details are to be settled by the committee in meetings throughout this week.
But Chairman Russell B. Long (D-La.) said to reporters that while eventually the tax cuts would favor business and individuals equally, next year there "would clearly be more for individuals than for business."
Personall tax cuts next year would be aimed at offsettig the scheduled Jan. 1 increase in Social Security taxes, and the increases income tax burden caused by inflation.
Committee staff members estimate that inflation will push up individuals' income taxes by $15.1 billion next year.The Social Security tax increase will bring the government an estimated $12 billion next year, $8 billion of which will come from employes and $4 billion from business.
A "tax cut" of $25 to $30 billion would still leave taxes rising slightly.
The push for a tax cut picked up steam this summer when Republican presidential candidate Ronald Reagan endorsed about $36 billion in reductions for next year, mostly for individuals. The Carter administration then, as now, was holding out for a smaller cut to be voted later. But Senate Democrats panicked and promised to have to a tax bill on the floor by Labor Day.
Long alluded wryly to these election-year pressures after yesterday's action. "Governor Reagan Votes aye," he said.
Proponents-of a tax cut have argued that it would help to boost the economy out of recession. An assistant treasury secretary, Donald C. Lubick, repeated the administration's opposition to an early tax cut at the committee meeting yesterday. He said it would be "prudent to wait" in order to "scrutinize closely" the latest information on the economy.
There was some more evidence yesterday that the economy is beginning to recover on its own from the recession. Housing starts continued to pick up last month, and personal incomes rose by 1.4 percent. But the increase in incomes was accounted for by a cost-of-living adjustment in Social Security payments rather than by increased earnings of those with jobs.
Worries that the Federal Reserve Board may soon move to tighten credit further sent the stock market down 18 points, as measured by the Dow Jones industrial average, its largest one-day decline since March. Interest rates also shot up in New York, to their highest levels since the spring.
Financial markets fear that an early tax cut could be inflationary. Both the administration and private economists have stressed the importance of a "non-inflationary tax cut."
Finance Committee member Lloyd Bentsen (D-Tex.) said yesterday that "a $20 billion tax cut, properly structured, would in no way be inflationary."
Although the administration has consistently opposed enacting a tax bill this session, officials have indicated that they favor tax cut next year.
President Carter is expected to announce a new economic policy, probably including tax cuts, shortly.
Lubick said it was "always conceivable" that the president's proposals would be in line with the bill to be drawn up by the Senate Finance Committee, although he added that he thought it would be "very dificult" to get the two sets of proposals to mesh. He said that the administration would "try to do what is best for the economy."
There is general agreement within the administration and Congress that a longterm tax package that aims to boost productivity and to encourage business investment is needed.
The most likely option for a business tax cut is a change in the depreciation rules, whereby business offset taxes through the depreciation of capital investiments.
But some disagreement can be expected within the Senate committee over the best way to change the depreciation rules. The Republicans ae lining up behind to so-called 10-5-3 plan, which would cost only about $5 billion next year but much more in later years.
Sen. John C. Danforth (R-Mo.) commented yesterday that "all of us have our pet projects." He favors allocating 50 percent of next year's cut to business. But Long said that he thought personal tax cuts should be considered first.
Bentsen, meanwhile, introduced a bill yesterday for a $10 billion tax cut aimed at stimulating business investment. In addition to his seat on Finance, he is chairman of the congressional Joint Economic Committee.
Despite the Finance Committee's vote, there is still considerable uncertainly about whether Congress will pass a tax bill this year. Senate Minority Leader Howard H. Baker Jr. (R-Tenn.) told reporters yesterday he thought it "highly unlikely" that a bill would be passed.
Constitutionally, tax legislation or iginates in the House, not the Senate. The House Ways and Means Committee, though, has been unenthusiastic so far about drawing up tax cuts this year.
But the Ways and Means chairman, Al Ullman (D-Ore.), who has opposed a tax cut, said, "We'll be prepared in Septemeber to assess the Situation and see where to go from there. While it would be better to proceed first thing in January, we'll be prepared to move on a House position if the Senate acts responsibly."