President Reagan will announce tonight a $53.9 billion tax cut for next year, with $44.2 billion going to individuals and $9.7 billion for business, Treasury sources said yesterday. By 1984 individual taxes would be cut by $118.1 billion, sources said, and business taxes by $30 billion for a total of $148.1 billion.
Personal tax rates would be cut by about 27 percent over 3 1/2 years, under the president's plan, and would, in dollar terms, overwhelmingly benefit the rich.
By the time the tax cuts are fully effective in 1984, people with incomes of over $200,000 would have their taxes slashed by about $30,000 a year on average. For those with incomes between $20,000 and $30,000 the cut will add up to less than $1,000 a year, and for those earning between $10,000 and $15,000 it will be worth just a little over $350.
In percentage terms, however, the Reagan tax cut would be worth more to those with lower incomes than to high earners, experts says.
This is largely because the president's plans would leave unchanged the present 50 percent cap in the tax Rep. Jack Kemp (R-N.Y.) said he was disappointed by the "timidity" of the administration's plans for cutting taxes on high earners. t
Although the 50 percent cap was unchanged in the original Kemp-Roth tax bill as it is not part of the basic rate schedule, co-sponsored by Kemp and endorsed by Reagan, Kemp now wants the cap itself cut by 10 percent a year for three years.
The ordianry tax rates would be cut by 5 percent over 1981, with further cuts of 10 percent in January 1982 and 1983 and a final 5 percent cut in January 1984.
But Congress may water down the administration's proposals. House Ways and Means Committee Chairman Dan Rosenkowski (D-Ill.) cautioned yesterday that, while the panel will approve a bill to cut both personal and business taxes, a 10 percent cut over three years, similar to Reagan's proposals, would be "another story." The cost would be "staggering," he said and called "into serious question the effect such massive reductions would have on inflation" and growth.
White House press secretary James Brady first insisted yesterday that the rich will benefit exactly as the average wage earners from a cut of nearly 30 percent over three years.
But Brady bogged down under a series of questions and announced he would call for Treasury Department officials to clarify the matter.
"I've shot my foot, I don't want to blow my leg off," Brady said.
He let Norman Ture, Treasury undersecretary for tax affairs, pull the trigger. True, with assistant Treasury secretary Buck Chapoton, stood what Brady had been telling reporters on its head and confirmed that the tax reduction for wealthy Americans would be less in percentage terms than for those lower down the scale.
The Treasury figures showed a family of four with an income of $200,000 getting a 16 percent cut in taxes by 1984, compared with a 28.7 percent cut for a $20,000 family.
But these numbers are based on the unrealistic assumption that the $200,000 family gets all its income from wages and salaries and so would not benefit from the successive cuts in tax rates on investment income.
Although the 50 percent cap will not be changed, it would effect fewer and fewer people as other rates come down. By 1984 only those with incomes above $215,400 would face a marginal tax rate of 50 percent.
In the meantime, taxpayers with incomes of somewhat more than $42,500 if single, or $60,000 if married, who earn all their money from working and have no investment income, would have a smaller percentage tax cut than average.
This is because the top tax rate they pay on their earned income is already limited to 50 percent, although their taxable income puts them into a higher rate bracket. So while they would benefit from a cut in the lower tax rates, their marginal tax rate would not immediately be cut.
The cut in tax rates above 50 percent would only affect those with unearned income.
The fairness of the Reagan package of tax and spending cuts has become a matter of extreme sensitivity at the White House. Reagan took the occasion of a meeting with a coalition of conservative groups in the Cabinet Room to stress that all Americans would bear equal burdens.
"The only thing about [the program] is that if misery loves company then everybody better love everybody else because we didn't over look anyone," Reagan said.
Meanwhile yesterday, the agency that would distribute the tax cuts was fighting administration proposals to chop its staff by 6,000. The Internal Revenue Service argued to the Office of Management and Budget that a cut of that size could cost as much as $1 billion in lost government revenues, sources said yesterday. The agency was given 72 hours to come up with arguments against the cuts, and reportedly spend last weekend toiling over its appeal.