WHAT THE TAX BILL WILL DO

The bill providing for the biggest tax cut in U.S. history emerged last week from a Senate-House conference committee. In its final form, it calls for a reduction of $9.1 billion in individual income taxes and a drop of $2.4 billion in corporate taxes, with two-thirds of the cuts to take effect this year and the rest in 1965. Probably starting in mid-March, the payroll withholding rate will go down from the present 18% to 14%. That will immediately pump $800 million a month into the economy and amount to a weekly raise in take-home pay of $4.20 for a married worker earning $150 and claiming four dependents. Among the bill's specific provisions:

Individual Rates. Income-tax rates for individuals will drop from the present range of 20%-91% to a range of 16%-77% this year and 14% to 70% in 1965, amount to an average tax cut of 19%. The following table compares rates for married taxpayers filing joint returns under the present law with those under the new bill.

Present New Taxes Taxable Taxes 1964 (Two Stages) 1965 Income 1963 $ 2,000. 400. 325 $290 3,000. . . 600 . . . 500 . . . . 450 4,000 800 680 620 6 000 1,240 1,080 1,000 8,000 1,680 1,480 1,380 10,000 2,200 1,950 1,820 12,000 2,720 2,420 2,260 16,000 3,920 3,500 3,260 20,000 5,280 4,720 4,380 28,000 8,520 7,580 7,100 40,000 14,520 12,900 12,140 52,000 21,480 19,200 18,060 76,000 36,720 32,940 31,020 100,000 53,640 47,880 45,180 200,000 134,640 118,680 110,980 400,000 . . 313,640 271,680 250,980

Corporate Rates. For large corporations, the present 52% rate will be cut to 50% , retroactive to Jan. 1 of this year, and to 48% by Jan. 1, 1965. For corporations with incomes of less than $25,000, the rate will drop from the present 30% to 22% this year, with no further cut in 1965. Corporate-tax collections will be speeded up to put them on a pay-as-you-go basis by 1970.

Standard Deductions. Individuals may elect to take a new standard short-form deduction of $300, plus another $100 for each dependent (excluding themselves).

The new option will drop some 1,300,000 low-income Americans from the federal tax rolls. The old standard deduction of 10% of gross income will remain an alternative choice. In either case, $1,000 will still be the maximum short-form deduction. Itemized long-form deduction will still be permitted.

State & Local Taxes. Auto-and driver's-license fees as well as direct consumer taxes on liquor, cigarettes, tickets, hotel rooms and the like will no longer be deductible.

Still deductible will be state and local gasoline taxes as well as general sales, property and income taxes.

Moving Expenses. A worker who moves at least 20 miles to join a new company may deduct the cost of transporting his household goods to the new location as well as the travel expenses of his family. The same deductions may be claimed by an employee transferred within his company to a new location--provided that remaining in his present home would increase his commuting distance by at least 20 miles and that the move is made without company reimbursement.

Old-Age Benefits. Under most circumstances, the bill exempts from taxes the profit realized by a taxpayer 65 or over on the sale of a home in which he has lived at least five of the preceding eight years. In the past, all such profits have been subject to capital-gains taxation unless reinvested in a new home. The bill increases from the present $1,524 to $2,286 the amount of investment income against which any elderly married taxpayer may claim retirement tax credit. It also exempts taxpayers 65 or over from the rule limiting deductions for drugs and medicines to the extent that they exceed 1% of income. Younger taxpayers who pay such expenses for elderly parents will be exempt too. The elderly are already exempt from the rule limiting deductions for doctor bills and other medical expenses to amounts in excess of 3% of income.

Sick Pay. An employee who receives full pay while sick may no longer deduct such income unless he is ill more than 30 days. Then, as under the present law, he may claim up to $100 weekly. If sick pay is less than 75% of regular weekly wages, however, an employee may deduct a maximum $75 weekly at once, if he is hospitalized, and after one week if he is at home.

Child-Care Expense. The maximum deduction for care of children by a taxpayer who must work is raised from the present $600 to $900, but only if there are two or more children. The maximum age of children for whom such deductions may be claimed is raised from the present eleven years to twelve years.

Casualty Losses. Such uninsured losses as auto damage or vandalism at a summer home, now fully deductible, will be deductible only to the extent that the loss exceeds $100. The provision is designed to eliminate deductions for fender-bender accidents and the like.

Income Averaging. Artists, authors, actors and others, whose fat years often alternate with the lean, will be allowed to average out their earnings over five years for a better tax break. For example, under the old law an unmarried author who makes only $3,000 in each of four successive years and then takes in $44,000 during a fat fifth year would owe $18,990 in taxes under the old law. Under the new law he would owe $11,390.

Group Insurance. Company-paid premiums to provide group term life insurance in excess of $50,000 for a single individual will be treated as regular income of the insured and taxed as such.

Earnings Abroad. The ceiling on tax-free earnings of Americans who have lived abroad more than three years will be lowered from $35,000 to $25,000. Those who have lived abroad for a shorter period may still claim up to $20,000 annually in tax-free income.

Capital Losses. Large losses may be carried forward indefinitely to be written off in amounts of $1,000 each year against regular income. Under the present law, capital loss could be carried forward for only five years.

Dividend Credits. Stockholder credits against taxable income, which under the old law allow a single taxpayer to deduct the first $50 in dividends and a married couple the first $100, will be doubled to $100 and $200. A second provision, which allows stockholders to deduct another 4% of total dividend income from final taxes payable, will be repealed in two yearly stages.

Business Travel. Full transportation expenses of combined business-pleasure trips within the U.S. will be deductible. At present only travel expenses that are a result of the business side of the trip are deductible.

Stock Options. The price of stock options granted employees may no longer be less than the market price of the stock at the time. The options must be exercised within five years, rather than within ten years as now provided. To qualify for the lower capital-gains tax rate on profits resulting from an increase in market price, the stock purchased under option must be held at least three years, rather than the six months required under the existing law.

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