The Senate Finance Committee yesterday rushed through major tax cuts for both individuals and business, to be effective next Jan 1.
In less than 15 minutes yesterday afternoon, the committee voted, 16 to 0, for a $22 billion cut in individual income taxes next year, equivalent to an across-the-board reduction of about 6 percent.
Among other things, the senators agreed to raise from $1,000 to $1,100 the familiar personal exemption that goes to every person covered by every tax return, cut tax rates at almost all levels, with the highest bracket falling from 70 to 67 percent and allow a special tax deduction to married couples who file jointly, so that their tax liability would not be so much greater than if they were single.
This deduction would be phased in over two years and would vary with income.
The committee had already voted, 20 to 0, in the morning for a cut in business taxes of something more than $11 billion next year, equivalent to roughly one-sixth of their tax due.
This would come mainly through more generous depreciation allowances. [Details on Page D3].
The personal tax cut is aimed at offsetting the Social Security tax increase scheduled Jan. 1, and the increased income tax burden because of inflation.
Committee staff members put the cost of the cuts for individuals at $40 billion by 1985, and for fiscal year 1981, which starts in October, at between $12 billion and $13 billion.
But it is still far from certain that a tax bill will be enacted this year.
The Finance Committee has forged ahead despite the opposition of both the administration and the House, which, under the Constitution, originates tax legislation.
The committee's bill could be held up on the Senate floor, while the House has yet to move on drawing up its own bill.
The committee agreed Monday to report out a bill that would cut taxes between $25 billion and $30 billion in 1981, and by no more than $70 billion in 1985. They also agreed that by 1985 the bill would benefit business and individuals equally.
That would give them about $35 billion each, and the committee has already surpassed this on the individual side.
On top of the measures agreed to yesterday, the committee may vote today proposals to boost savings by exempting more saved income from taxes, and to relax the tax on capital gains.
Senate Finance Committee Chairman Russell Long (D-La.) has moved the panel swiftly to vote on the "big ticket items," showing his determination to get a bill out this week to the full Senate.
He is due to return at the end of this week to his home state where he faces a primry on Sept. 13.
The personal tax plan is as follows:
An increase in the personal exemption to $1,100, Estimated cost in calendar 1981: $4.8 billion.
An increase of $100 in the so-called zero bracket amount, below which income is tax-free, to $2,400 for single people, and $3,600 for married couples filing jointly. Estimated cost in calendar 1981 $1.5 billion.
A two-step deduction to reduce the so-called marriage penalty. The deduction would be 5 percent in 1981 on the first $30,000 in earned income of the lower paid spouse, rising to 10 percent in 1982. Estimated cost: $2.7 billion in 1981.
An increase in the earned income tax credit which benefits lower income working parents, from 10 percent to 11 percent on income up to $5,000 and with the credit phasing out at higher income levels than now. Estimated cost in calendar 1981: $600 million.
A general rate reduction, details of which will be presented to the committee this morning. Rates will be cut in almost all tax brackets, with the top rate down from 70 percent to 67 percent, and the bottom rate cut probably from 14 percent 12 percent. Estimated cost in calendar 1981: $12.4 billion.
On the business tax cut the committee rallied round a modified version of a plan put forward Monday by Sen. Lloyd M. Bentsen Jr. (D-Tex.), which would vastly simplify the rules for depreciation. Businesses would be able to write off their purchases of new plant and equipment about 40 percent faster than under present law.
The cost of the agreed plan has not yet been estimated fully by the committee, but it will run to more than $11 billion in calendar 1981 ($4.5 billion in the fiscal year) and more than $18 billion by 1985.
The business element of the tax cut would, the committee hopes, provide a substantial boost to investment over the coming years.
It comes at a time when profits have fallen by a near record amount, and there is widespread agreement among economists that investment in new machinery and equipment is urgently needed to deal with recent disastrously low growth in productivity.
The broad consensus over the need for a major business tax cut helped Long steer his colleagues quickly to agreement on the depreciation proposals.
The Republican caucused before the vote yesterday morning to consider whether or not to keep pushing their own more costly, but simpler, proposals for accelerated depreciation, the so-called 10-5-3 plan.
Under 10-5-3 businesses could write off their investment in structures in 10 years, most equipment in five years, and in cars and trucks in three years.
But in the end they decided to back the Bentsen plan, with two main amendments. As well as speeding up write-offs the proposals would simplify business accounting. All equipment would be classified for write-off in either 2, 4, 7 or 10 years. At present there are 130 different classes, with 30 pages of regulations to explain them.
A special proviso to help small business would allow them to write off any investment of less than $25,000 in one year only, "Mom and Pop" businesses would also have more generous write-offs for buildings, if used by the owners, under one of the Republican amendments. The other would relax the tax rules for investments which take two years or longer to be built.