Tax Plans

During the campaign, Jimmy Carter described the U.S. tax system as a "disgrace to the human race" and promised "comprehensive" reforms. But with unemployment at 6.9%, inflation at 6.5% and the economy expected to weaken in the second half of 1978, he has had to shelve most of his ideas for reform. Instead, to stimulate the economy, he settled last week on a package of tax cuts totaling $25 billion--about $3 billion higher than had been expected--which he will recommend to Congress in January. Main features of his tax program:

> For individuals, tax rates would be trimmed across the board by two percentage points, reducing them to a range of 12% to 68%. The $750 personal exemption would be replaced by a $250 tax credit for each member of a taxpayer's family. As a result, Treasury Department officials estimate, the income tax paid by a typical family of four with an annual income of $10,000 would be slashed to $16, a savings of $430; a family, of the same size earning $35,000 a year would pay an income tax of $6,148, a savings of only $70. Tax cuts for individuals would total about $16 billion a year.

> For corporations, tax rates would be reduced to 45%, a cut of three percentage, points, as of next Oct. 1, and by another percentage point on Jan. 1, 1980. The investment tax credit would stay at 10%, instead of dropping to 7% in 1980, as now scheduled. Moreover, the credit, which now applies only to new machinery and equipment, would be extended to new plant construction. Tax savings for business would total about $7 billion a year.

Carter also will recommend two minor anti-inflation measures: 1) elimination of the 4% excise tax on telephone calls, a relic of World War II levies, and 2) a cut, to .5% from .7%, in the payroll tax paid by employers to the unemployment insurance fund. Total savings: $2.3 billion a year. In a symbolic gesture, Carter will propose disallowing business tax deductions for country club fees and for half the cost of working lunches. But he abandoned his idea of taxing capital gains at the same rates as ordinary income.

Prospects are excellent for speedy passage of the Carter tax plan, though Congress may add another $5 billion or so in tax cuts. Businessmen and economists cautiously endorsed Carter's proposals as beneficial to the economy, even though the stimulus will be largely offset by new increases in Social Security taxes, which will begin taking effect in 1979.

Said Jack Carlson, chief economist for the U.S. Chamber of Commerce: "He has recognized that the economy is slipping away faster than he expected, and that he doesn't have time for major reform proposals."

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