President Reagan has approved in principle a plan to create up to 75 "enterprise zones" in rundown urban areas, offering companies special tax breaks to move in and create new jobs.
Sources said the enterprise zones, one of the few new domestic programs the president has embraced, could be included in his State of the Union and budget messages this year.
Meanwhile, sources said the president has also approved as one of the new cuts in his budget for next year a $1 billion reduction in the government's basic welfare program, aid to families with dependent children (AFDC).
Proposed changes include compulsory "workfare" under which welfare recipients would have to work off their benefits (states now have the right to adopt workfare or not, as they choose); cutting off the parent's benefits when the child reaches 16 (instead of 18); counting federal fuel assistance received by an AFDC family as income in determining AFDC benefits; counting military pay if the absent father is a soldier; prorating shelter costs if the welfare family lives with another family, and several other items.
The new AFDC cuts, designed to help reduce what officials say could be a $150 billion federal deficit in fiscal 1983 if no spending cuts or tax increases are made, would be on top of $1 billion already cut from federal AFDC outlays in fiscal 1982.
Rep. Jack Kemp (R-N.Y.), who has sponsored an enterprise zone bill of his own along with Rep. Robert Garcia (D-N.Y.) and an unusual coalition of conservatives and liberals, said in an interview yesterday that "it's my understanding that the president has approved, in principle and conceptually," a plan designed to revive economically depressed cities with a new batch of special tax credits and writeoffs.
Kemp, as well as sources at the Department of Housing and Urban Development, said that all the specific writeoffs are "not locked in."
But in general, the sources said, the plan envisions creation of up to 25 zones a year for the next three years; elimination of the capital gains tax on investments in the zones; a tax credit of possibly $1,500 a year for each low-income worker an employer hires for work in the zone; a similar tax credit or deduction for the employer on Social Security and other similar taxes paid for each employe; a federal tax credit of perhaps $450 per worker in the zones, provided the worker meets certain conditions, such as having previously been on welfare or unemployed; and special investment tax credits (possibly 10 percent on construction, 5 percent on machinery and 3 percent on light machinery) for investments made in the zones.
Kemp and other sources said all these details are still to be worked out and these provisions should be taken as examples rather than final decisions. Kemp said his coalition would be opposed to "undoing of safety and environment" protections as a way to stimulate business in the zones, and he wants assurances that the new jobs would go to the low-income people already living there.
On AFDC, added cuts in the $1 billion package include: requiring at least one parent to enroll in "workfare" if there are two parents in the family; requiring all AFDC applicants to search for a job; rounding benefits down to the lowest dollar; paying benefits only for part of a month if application is made at some time after the start; and counting public aid received from other programs by crippled children in a family as part of its basic income for AFDC calculations. The White House killed a proposal to count food stamps and housing aid as if they were cash income in determining AFDC benefits.