Congress Gets the Antitax Message

But goes into frenzied marathon sessions in an attempt to avoid a Carter veto

Few lines won Jimmy Carter more cheers in his election campaign than his charge that the nation's tax system is a "disgrace." As President, he pledged to make the tax code "simple, fair, equitable [and] progressive" and to "substantially reduce" the burden on the taxpayer. But Carter discovered that Congress had its own idea of just what kind of tax program the nation needs.

At the start of this week, the House and Senate produced a bill that would slash $18.7 billion from the tax rolls. This was the centerpiece of one of the most chaotic finales to a congressional session in memory. As Senators and Representatives fought both fatigue and filibuster, they hurriedly voted on scores of measures in a rush to get home in time to campaign for reelection. Said Connecticut Democrat Abraham Ribicoff, a 16-year veteran of the Senate: "I don't recall an end of session worse than this one."

The congressional tax bill totals some $1.3 billion more in cuts than Carter had requested in August. The bill, moreover, contains few of the reforms that the President had originally proposed last December. Missing, for example, are cuts in deductions allowed for medical costs and for business entertainment, such as club dues, first-class travel and the much maligned three-martini lunch. Tuned finely to the antitax and more conservative mood of the electorate, Congress was mainly interested in axing federal levies and encouraging investment. Although the congressional bill falls short of the Administration's original goals, it seemed certain that Carter would sign it.

If the President okays the bill, taxpayers will be pleasantly surprised when they begin filling out their 1979 returns. Individuals will receive about $15 billion in cuts (including $2.1 billion in capital gains), with corporations getting only $3.6 billion. In past years, the business tax cut has amounted to about 50% of that received by individuals; this year, it is 25%. Under the reduction proposed by Congress, a typical family of four earning $15,000 a year will find its income taxes reduced by $97, although, under a law passed last year, it will be paying $42 more in annual Social Security taxes beginning Jan. 1. A family earning $25,000 will save $249 on federal income taxes, but its added Social Security burden will be $439.

The bill sent to the Oval Office is the product of a joint House-Senate committee that began meeting late last week in the Ways and Means Committee's ornate, high-ceilinged conference room in the House's Longworth Office Building. The task of these ten Representatives and 14 Senators was to reconcile the vastly differing tax bills that each chamber had passed. While the Representatives' version, approved last month, would have saved taxpayers $16.3 billion, the Senate expanded the cut to $29.3 billion.

First the upper chamber voted a $4.5 billion reduction to offset the increased Social Security taxes. Then it tacked on an array of special-interest freebies. New York Democrat Daniel Moynihan proposed that the New York State Power Authority be allowed to issue tax-exempt bonds. It passed. Russell Long's Senate Finance Committee had moved that chicken coops built by egg producers should qualify for a 10% investment tax credit. It also passed. Taking up the controversial issue of reducing the tax on capital gains, the Senate turned out to be $1.4 billion more generous than the House, voting a $2.5 billion slash--even though Carter had once threatened to veto any capital-gains liberalization at all. The Senators added another provision that the President stoutly opposed: the granting of tax credits for college tuition.

Partisan political motives of the Senate's majority Democrats were apparent in their treatment of the Republicans' highly publicized Kemp-Roth amendment, which called for slashing income tax rates by 33% over the next three years. On a virtual party-line vote, the Senate two weeks ago killed Kemp-Roth, 60 to 36. But, with barely a blush, the Democrats last week rammed through an amendment introduced by Georgia Conservative Sam Nunn that could cut taxes $164.5 billion by 1983. The measure differed from Kemp-Roth by a provision that it go into effect only if specified decreases in federal spending and the budget deficit were achieved. Republican Senator William Roth of Delaware promptly signed on as a co-sponsor and laughingly passed out cigars in honor of the birth of "Son of Kemp-Roth."

The President was very upset by the Senate's largesse. He had been displeased with the House bill, which gave relatively rich taxpayers far more of its tax cuts than he wanted. Some 25% of the House-approved reduction would go to people earning more than $50,000 a year (primarily because, while their numbers are small, they pay a large share of the nation's taxes). But Carter found the House bill's overall total of $16.3 billion in tax cuts acceptable. By contrast, the tax-relief distribution in the Senate bill was more to Carter's liking; it included a slightly better break for middle-and low-income families. But Carter objected strenuously to the Senate's inclusion of tuition credits and the Nunn amendment, and to the $29.3 billion size of the slash, which he feared would fuel inflation.

Thus the struggle became a complex triangular fight between the House, Senate and President. The reasoning at the White House was that Carter would take his stand on holding down the budget deficit, fighting inflation and limiting the tax cut. In a low-key, candid meeting with the Senate's Russell Long and House

Ways and Means Chairman Al Ullman, Carter said that he "would not sign a bad bill, election year or not."

The two congressional leaders, with Carter as a prodding influence, then worked out a gentleman's agreement. They decided that the conferees in each chamber would meet separately and decide what they would offer the other body. As the conferees got down to the touchy differences between House and Senate, they ignored the rules that such vital decisions must be made in public, and went into closed-door sessions.

Still, there was plenty of activity outside the committee room. Reported TIME Capitol Hill Correspondent Neil MacNeil: "To the corridors of the Longworth Office Building flocked senior Administration officials and top Washington tax lobbyists. They huddled in dark corners with anxious conferees to check the latest status of the 126 individual points before the joint committee. Arms were being twisted and deals being made. An example was the special tax deduction for companies with personnel based overseas. The House version cut the tax liability of such firms by $545 million; the Senate break was a more modest $310 million. This difference was resolved in very hard bargaining between an opponent of the tax break, Connecticut's Ribicoff, and an advocate of the measure, Louisiana's Joe Waggonner, the ranking Democrat on the House Ways and Means Committee. The result: a compromise costing the Treasury $381 million."

The activity on Capitol Hill was being carefully monitored by the White House. Jimmy Carter postponed a planned weekend trip to Camp David and Press Secretary Jody Powell quipped that "the President's afraid to leave town." Domestic Adviser Stuart Eizenstat patrolled outside the conference room, lobbying for Carter's position that an increased share of the tax relief go to lower-and middle-income taxpayers. Treasury Secretary Michael Blumenthal was consulting constantly with Congressmen; among other things, he warned them that a tax bill would be vetoed if it contained, as the Nunn amendment did, "restraints" on future federal budgets. The committee bowed to the pressure and substantially watered down the measure. For a time, however, it seemed that Congressman Barber Conable, a New York Republican, might take the issue back to the House floor, where it had considerable backing.

If signed by the President, the tax bill will take effect next year. Among the beneficiaries of the key features:

Individuals. The current exemption of $750 per dependent is to be boosted to $1,000; the $35 tax credit will be dropped, however, as will the alternate credit of 2% of the first $9,000 of taxable income. Tax brackets are expected to be widened by several percentage points each, thus slowing the pace at which inflation pushes taxpayers toward progressively steeper rates of taxation. However, between 1 million and 2 million taxpayers, mostly single people itemizing their returns, will find their taxes actually increased somewhat.

Homeowners. Persons over 55 who for three of the past five years have lived in a house that is their principal residence will pay no taxes on the first $100,000 profit made from selling that house. This will be a once-in-a-lifetime benefit.

The Poor. The earned income credit, a device that boosts income for poor workers with families, has been considerably increased.

Investors. To encourage risk-taking investment, taxpayers can exclude completely "from their taxable earnings 60%, instead of the current 50%, of the gains realized from the sale of capital assets; in no case will an investor have to pay more than 28% taxes on capital gains, a cut from the present maximum of 49.1%.

Among other important issues dealt with in the bill are the minimum tax on high-income persons, taxation of unemployment compensation paid to those earning more than $20,000, and an investment tax credit to help rehabilitate the inner city. Under threat of a veto, the Senate's tuition tax-credit measure was separated from the package.

As the final shape of the bill began to emerge, it seemed clear that, as with nearly all complex legislation, it would completely satisfy no one. But because the measure gives some tax relief to the nation's inflation-besieged electorate, Carter, despite his disappointment over the lack of reform, was expected to sign the bill. This would be good news for the tired members of the 95th Congress; they would then be able to nail a tax cut to their election-campaign banners. -

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