TAXES: THE R AND R BILL

FOR more than a decade, tax reform has been the subject of more talk than action on Capitol Hill. Last week this tradition was reversed when the House took a long-overdue step toward granting the country's front-line taxpayers some R & R from the financial wars. By a lopsided vote of 394 to 30, the House approved a bill that would ultimately give citizens $9.2 billion worth of relief, by lowering certain tax payments, and the Treasury $6.9 billion worth of reform, by plugging various loopholes.

The 368-page bill is the first comprehensive revision of the U.S. tax code since the income tax was adopted in 1913. Despite its sweeping nature, however, there was little disagreement over its passage. Blaming a "misunderstanding," Ways and Means Committee Chairman Wilbur Mills defused potential liberal opposition to the bill by providing tax breaks for lower-and middle-income taxpayers left out of the measure as reported by his committee. Inclusion of those in the $7,000 to $12,000 categories will cost the Treasury $2.4 billion. Only three-quarters of the time allocated for floor debate was used. Constituent mail has been running so strongly in favor of the measure that few Congressmen were willing to face next year's elections without a safe position on the issue.

Striking Hard. The bill is a sound one. In addition to repealing the 7% investment-tax credit as recommended by President Nixon, it strikes at what most taxpayers regard, perhaps justifiably, as the very citadel of special tax privilege -- the 27 1/2% oil-depletion allowance. By cutting the allowance to 20% and reducing the depletion advantages for other extractive industries, the bill would enrich the Treasury by $400 million annually. Although oilmen plan to fight the cuts in the Senate, their wound could be worse. The bill leaves untouched the industry's far more valuable advantage of writing off oil-drilling costs as current expenses, rather than as long-term capital investments. The bill does, however, strike hard at the real estate industry. While leaving untouched the depreciation allowed on new residential buildings, it eliminates the accelerated depreciation provision for commercial property.

Also hit would be private foundations, some of which have led in creative efforts to improve the quality of life in America. In an attempt to crack down on organizations established to avoid taxes, the bill imposes a 7.5% levy on the investment income of all foundations. The measure could put a serious crimp in the activities of some of the country's most respected philanthropic operations, which now donate substantial portions of their income to private universities, museums and charities.

Moving Expenses. The bill also takes pains ta plug some of the loopholes used by people in the $100,000-plus income brackets to minimize or avoid taxation. Henceforth, individuals in all but the lowest income categories would pay taxes on at least half of their income. They could no longer rely totally on such current shelters as the untaxed portion of capital gains, real estate depreciation, and interest from tax-free public bonds. Further, the bill doubles the period for which assets must be held to qualify for capital gains preferences and eliminates such tax shields as the appreciation on assets donated to charity and the losses from hobby farming. This "minimum tax" plan would bring in $100 million a year in revenues.

The beneficiaries of the bill's relief provisions are the country's 72.8 million individual taxpayers, who now provide slightly more than half of the Federal Government's annual tax revenue. The bill removes 5.8 million low-income families from the tax rolls entirely and provides rate reductions by 1972 of at least 5% for those in all but the highest income categories. As a result, a family of four that now pays $70 in taxes on an income of $3,500 would pay nothing. The same family at the $7,500 level would pay $576 rather than $687, while the bill for a family earning $15,000 would drop from $2,062 to $1,846. Similar relief would also be provided for widows, widowers and unmarried people over 35, who, the Ways and Means Committee feels, bear "unduly heavy tax burdens."

People who relocate to accept new jobs would be allowed to deduct up to $2,500 in moving and living expenses. A further tax break would be provided by a hike in the 10% standard deduction claimed by many taxpayers. The figure would rise by stages to a new maximum of 15% by 1972. That change would benefit taxpayers by $1.4 billion a year when fully effective. The public will share an additional $9 billion in reduction when the income tax surcharge, which the Administration and the House want extended through June 1970, finally expires.

Because the bill's reform measures would take effect more quickly than those providing relief, the thinking goes, its impact on the economy for the time being would be noninflationary. In 1970, when fiscal restraint will still be required, the Treasury would take in an extra $4.1 billion, while giving up only $1.7 billion. By the time the bill's reform provisions become fully effective, the economy's natural growth is expected to have broadened the tax base sufficiently to offset the revenue lost by reduced rates.

Whether taxpayers would get to keep this windfall for long is doubtful. Hard-pressed state and local governments have been searching for new revenue sources. If their past performance is any clue, they can be expected to take advantage of any relaxation of the federal tax grip to impose new taxes of their own.

Favorable Reaction. The bill now goes to the Senate, where the Finance Committee will begin holding hearings on it next month. Although personally opposed to some of the measure's reform features, such as the depletion-allowance cuts, Committee Chairman Russell Long has promised to report a bill to the Senate floor no later than Oct. 31. The Senate's reaction is certain to be favorable--and the President is expected to sign any reasonable bill that reaches his desk.

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