Many Benefit -- and Many Don't

READY for the President's signature this week was the bill that he had called his program's "cornerstone": a painstaking rewriting of the Internal Revenue Code. New York Republican Daniel Reed, who as chairman of the House Ways and Means Committee had more to do with the making of the bill than any other man in Washington, proudly declared that it was "the first overall revision of our tax laws which has ever been undertaken."

Technically, the detail job is an impressive effort to correct specific inequities, but in broad outline, the bill does not change the tax structure enacted by the New and Fair Deals. In its 929 pages the bill provides relief for millions of taxpayers in hundreds of special categories: e.g., certain working mothers, Christmas-tree growers, retired taxpayers. 65 and over, and recipients of income from stock dividends. Although most taxpayers will not get a nickel of relief from it this year, the groups that will are so numerous and varied that tax consultants should do a thriving business between now and April 15, the new T-day.

SPECIAL CATEGORIES

The new law leaves individual income-tax rates untouched, but for many taxpayers in certain big and little categories it eases the income-tax sting a bit. Among the beneficiaries:

RETIRED WORKERS, 65 and over, get a brand-new tax credit amounting to 20% of their taxable income up to $1.200. If the retired taxpayer's wife is 65 or over, she also gets the 20% credit on $1,200 of her own income (or, in community-property states, on the next $1,200 of joint income). Those younger than 65 who are retired under local, state and federal pension plans also get this credit, but only on their pension incomes. In computing the credit, the taxpayer must subtract from the $1,200 base his social-security payments and certain other tax-free income, plus, if he is less than 75, his earned income in excess of $900. Thus no retired person with social-security income can get the maximum credit of $240, and those with substantial tax-free or earned income may find no easement at all.

ANNUITANTS are likely to benefit from a new rule for computing tax exemption on annuities bought by themselves. That portion of the yearly payment equal to the annuity's total cost, divided by the number of years of actuarial life expectancy at the time payments begin, will be permanently taxfree. Under the old rule, the yearly payment was taxable up to 3% of the total cost, and when the annuitant had recovered the cost taxfree, the entire payment became taxable. Persons already receiving annuity payments may convert to the new formula, but in computing the exemption, they will have to deduct from the original cost the amount already recovered taxfree. Another change helps the taxpayer who receives a lump-sum payment under an annuity contract: he can compute his tax as if the sum had been paid in three equal installments in that year and the two preceding years. This same privilege will apply to taxable lump-sum payments under endowment or life-insurance contracts.

WORKING MOTHERS, widowers and divorced or separated fathers whose children live with them may deduct the cost of paying somebody to look after children less than twelve years old during working hours. Maximum annual deduction: $600, regardless of the number of children. For working wives living with their husbands, this maximum is reduced by any combined income exceeding $4,500, i.e., couples making $5,100 or more between them get no deduction at all. For widowed, divorced or separated mothers, no income limitation applies.

WIDOWS AND WIDOWERS with dependents will have, for two years after the death of the spouse, the privilege of splitting their incomes in figuring their tax.

STOCKHOLDERS, some 7,000,000 of them, get a generous break. The first $50 of dividend income is entirely taxfree, and 4% of all remaining dividends may be subtracted from the stockholder's income tax. This change will mean a lot of additional income for many in the top income brackets and may have the intended effect of stimulating stock ownership by middle-income groups. The dividend credit is based on the contention that a tax on dividend income, coming on top of the 52% tax on corporate profits, constitutes double taxation. The Reed bill retroactively cancels last April's 5% drop in corporate-tax rates, substituting the 4% dividend credit.

SALESMEN who do their selling outside the employer's place of business may deduct from taxable income the expenses they incur in making or seeking sales--and they can do so even if they take the standard deduction on their tax returns.

CLERGYMEN who receive a cash allowance for rental of living quarters may exclude from taxable income the part that actually goes for rent.

POLICEMEN may exclude subsistence allowances up to $5 a day.

WRITERS AND ARTISTS mayspreadbackovertheworkperiod (maximum: 36 months) income from productions that took 24 months or more; previously, the income could be spread back only if the work had been in progress 36 months or more.

INVENTORS, too, may now spread income from work that took up no more than 24 months. Furthermore, Congress stretched the maximum spread-back period on invention income from 36 months to 60. Professional inventors also benefit from extension of a rule that formerly applied only to amateurs: they may now count income from patent transfers as capital gains rather than regular income.

EXEMPTIONS & DEDUCTIONS

Millions of taxpayers outside these special categories will find a measure of relief in other liberalizations of rules on dependents and deductions. One change lifts a perennial summertime worry from parents of ambitious adolescents. Previously, the parent lost an exemption when a dependent child earned $600 or more during the course of a year. Now, as long as he furnishes more than half the child's total support, a parent may continue to claim exemptions for children under 19 and older children who are full-time students, no matter how much they earn. And the dependent child can continue to enter himself as an exemption on his own return.

HEALTH & CHARITY. Taxpayers may deduct medical expenses in excess of 3% of gross income. The old figure was 5%. A new limitation imposed by the bill is that expenditures for medicines and drugs may be counted as medical expense only to the extent that they exceed 1% of gross income. The tax bill also raises the maximum medical deduction to $2,500 per person and the maximum for any single tax return to $10,000 for married taxpayers or heads of households and $5,000 for single taxpayers or spouses filing separately. The old maximums were $1,250 a person and $5,000 or $2,500 a return. Also raised is the old 20% limit on charitable contributions: they are now deductible up to 30% of gross income.

BUSINESS TAX CHANGES

Of the estimated $1,363,000,000 that the new tax law's relief provisions will cost the Treasury during this fiscal year (next year and thereafter, the cost will run much higher), $827 million is supposed to stay with individual taxpayers. Relief to business organizations accounts for most of the remaining loss. Among the more important breaks for business:

DEPRECIATION DEDUCTIONS. In deducting capital-facility costs against taxes, businessmen (including farmers) will have a choice between several write-off rates. Under the rules prevailing in recent years, deductions had to be spread more or less uniformly over the "useful life" of the facility. Under the new rules, the businessman can recover up to two-thirds of the cost tax-free during the first half of the "useful life."

For many businesses, such an arrangement will shorten the risk on and therefore encourage investments in new plant and equipment. The Administration regards faster write-offs as one of the "cornerstone" law's two great contributions to the nation's long-range economic growth, the other being the tax break for stockholders.

RESEARCH EXPENSES may now be deducted in the tax year in which they are incurred. Previously, such year-by-year deductions (instead of amortization over several years) were allowable only for research carried out under a permanent research or development program. Thus the change will benefit mostly small companies that lack capital or facilities for permanent programs.

BUSINESS LOSSES deductible against taxes may now be carried back through two tax years instead of only one.

DEPLETION-ALLOWANCE RATES on many minerals, including uranium, go up several percentage points. The top mine rate of 23%, formerly applied only to sulphur, will cover a wide range of minerals, from asbestos to zinc.

OTHER BENEFICIARIES

Provisions chipping away at income taxes on individuals and corporations make up only a small part of the new tax bill. The lawmakers rewrote and in some places tightened many provisions concerning gifts, trusts, partnerships and reorganized or liquidated corporations. They plugged a clutch of minor loopholes that some taxpayers had found profitable. They switched income-tax day from March 15 to April 15, thus giving the taxpayer an extra month to recover from Christmas expenses and sparing him the yearly ordeal of hearing and reading cliches about the ides of March. They restored the rule prevailing before the early 19403 and exempted life insurance from estate taxes. This change is of no concern to those bequeathing or inheriting estates of less than $60,000--the minimum estate-tax exemption--but for many heavily insured high-income earners it may be the most important provision of the entire law.

So vast is the bill that any taxpayer runs a risk of missing a break if he pessimistically assumes that nowhere in the text is there anything for him. Congress has searched hard and microscopically for injustices. Items:

P: Legal expenses incurred in contesting a gift-tax assessment are now deductible from income, as are maintenance payments made to a wife under a private separation agreement. P: Business partnerships may now, under certain conditions, elect to be taxed as corporations.

P: A taxpayer supporting a first cousin confined to an institution may now claim him or her as an exemption. P: A landowner who cuts evergreens more than six years old and sells them as Christmas trees may now count the profit as a capital gain instead of regular income.

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