April 21, 1977
Page 11728
Mr. BUMPERS. Mr. President, I yield myself as much time as I may use.
Mr. President, I have observed one thing about the U.S. Congress in the very short time I have been here. Unless one is willing literally to get his brains kicked out on an issue he believes in very strongly several times, and keeps coming back, he is not likely to be very effective.
I found that tenacity is, perhaps, the greatest quality needed to be an effective Senator. In the past 2 years on many occasions, I have been defeated, and have come back with the same proposition over and over again. Ultimately, I have been able to prevail in a few things.
Unfortunately, on the issue at hand this will not be possible. Once the Senate adopts this particular proposal to increase the investment tax credit from 10 to 12 percent and the so-called jobs incentive provision, and assuming that this or something similar to it sticks in the conference with the House, there will not be an opportunity to come back and present it again.
If my position is correct, and the position of those who have joined me, such as the distinguished Senator from Massachusetts (Mr. KENNEDY) is correct, 6 months, from now it will not do any good to come back to this body and say, "See, I told you so," because the law will be on the books; the business groups in this country that will take advantage of this will have already begun to take advantage of it.
So I am a little saddened because I strongly suspect the floor manager has more than enough votes to defeat this motion, and all I can do is repeat what I said in the beginning.
When the President, on whom we depend to give us at least some guidance — and I am not suggesting that the executive branch or the President is the fountain of all wisdom — but when the President, I think very courageously, dropped the tax rebate provision the other day, he did it for the very best of reasons, not the least of which is that the economy is recovering at a very fast pace, faster than anybody imagined.
The front page story in the Washington Post this morning was that the gross national product for the first quarter of 1977 is twice the rate of growth of the last quarter of 1976. Last month we saw the unemployment rate drop from 7.5 percent to 7.3 percent. The President has been saying that he hoped by the end of this year we could possibly get the unemployment rate down to 7 percent.
I am going to make a prediction, which is always dangerous here, but I am going to predict that by July 1, if not sooner — even possibly by May 1 — you are going to see the unemployment rate in this country down to 7 percent. Now, that is an optimistic projection, and I hope I am right for more than one reason, not just because it is a prophecy that will come true, but because it would bid well for the future of the country economically.
So the President said:
I am dropping the tax rebate because the economy indicates that it no longer is necessary, and I am coupling the drop of the tax rebate with the so-called business incentive of $2.5 billion
which was to increase the investment tax credit and so-called jobs incentive provision.
It was rather widely reported in this country when the President submitted his tax rebate proposal — he never admitted it, of course, but it was widely reported in the country, and I am one who happens to subscribe to the idea — that when he proposed the $11.5 billion rebate that he was going to give to the American people, he added this provision almost as an afterthought so that business could not say, "You have overlooked us."
I do not think he had any enthusiasm for it in the beginning. It is just the same old trickle down theory. It never has worked and never will work, and most of the people on this side of the aisle have made innumerable speeches about their contempt for the trickle down theory.
So I was pleased when the President said, "Not only are we going to drop the tax rebate but we are also going to drop this thing for business.
Then, Mr. President, Mr. Carter has said he is singlemindedly devoted to the proposition that this country must start living within its means, and that by 1981 he intends to see that we are living within our means.
He says he takes his campaign promises seriously, and that during the campaign when he said he would balance thebudget by 1981 he meant just exactly that. I said, "Congratulations, and I will do everything I can to help you."
I have a resolution pending in the Senate right now which would amend the Constitution to force this Government to live within its means. It is not going anywhere, and I know it is not going anywhere — maybe we will hold hearings on it — but it is an interesting thing to me that there are 20 cosponsors to my resolution from both sides of the aisle. But what a curious enigma it is that when the President himself, the Secretary of the Treasury and the Secretary of Labor all say this $2.6 billion we are talking about here is going to be another waste, the budget balancers seem to dissolve and vanish into thin air.They cannot be found.
I am also curious, and I am sure the floor leader for the bill will be happy to tell us, how many jobs are going to be created with this provision? I do not want one of those computer models because he himself says he has nothing but contempt for computers. The only thing you get out is what you put in, and there is some merit in what he is saying. But I am curious. How many jobs can we expect to be created under this bill, under this particular provision?
Mr. LONG. Mr. President, will the Senator yield?
Mr. BUMPERS. I yield.
Mr. LONG. The House estimate is there would be as many as 200,000 to 400,000 jobs created.
Mr. BUMPERS. How was that computation made?
Mr. LONG. I assume they made it in somewhat the same way we made ours, by taking some samplings, talking to people, talking to small business organizations interested in the jobs credit and coming un with the best, most intelligent, guess they could make under the circumstances.
May I say to the Senator that in terms of these estimates — I think their method of estimating that is just as accurate as the administration's estimate of how many jobs they were going to be creating with the $50 tax credit or the 2 percent increase in the investment tax credit.
Now, based on the information I have, I think that is a conservative estimate for that approval.
Mr. BUMPERS. I agree with the Senator 100 percent. I just finished saying that the executive branch is certainly not the fountain of all wisdom. I did not agree with their projection on the $50 rebate and, frankly, I do not believe, and we will never have any way of disproving each other, that this provision is about to create anywhere between 200,000 and 400,000 jobs.
Mr. LONG. Mr. President, will the Senator yield at that point?
Mr. BUMPERS. Yes.
Mr. LONG. But is it not true if it does not create any substantial number of jobs then the cost will be practically nothing? The cost will be very, very minor.
Mr. BUMPERS. But you have the investment tax credit.
Mr. LONG. The cost will be very, very minor in the event no jobs are created. In other words, if no jobs are created there would be no cost in the provision except for some jobs which would have been created anyway, and in that case the number of new jobs created must be at least 3 percent above the base figure.
Mr. BUMPERS. If somebody elects to replace all of his capital equipment in his plant anyway, he is going to get the advantage of the 2 percent investment tax credit increase.
I shall not continue to belabor that. If we had passed such a provision as this last December, and had it become effective in January, this morning's Washington Post report about the gross national product having doubled since the last quarter of 1976, would have put everybody in a state of euphoria, They would have said, "You know, the U.S. Congress is as wise as a tree full of owls. We put this provision in and look what it has done."
But we did not do it last December, and the economy is moving extremely well by itself.
As a matter of fact, if it continues to move the way it has the first quarter of this year this provision and no other provision will be necessary. The only problem we are going to have is inflation in the next 6 months. But now we are going to put this into place, and I suspect we are, indeed, going to adopt this provision. I think the economy is going to move well, business is going to take advantage of this, they are going to hire more people just as they are going to do anyway and every economic indicator indicates they are going to hire these people anyway because business is good right now.
So we can all come back 6 months from now and say there is just no telling what would happen in this country if we did not pass this provision giving business this $2.6 billion.
Mr. President, I am not attempting to be perjorative in my position, and I am not deprecating the Finance Committee or anyone else who happens to believe in this.
It is a curious thing to me that the so-called liberals in this body like the jobs credit incentive, and the conservatives like the increase in investment tax credit. We have the little thing to bind in there so it attracts everyone, and it is almost impossible to defeat it. But I can tell Senators if the Senate does not reject my motion today, and we have a chance to vote on it, 6 months from now this motion would be adopted overwhelmingly.
I yield 5 minutes to the Senator from Maine.
Mr. MUSKIE. Mr. President, at the outset may I say that I support the Kennedy-Bumpers amendment for reasons that I hope I have time to discuss in more detail. But before I get to that I shall make some observations from my perspective as chairman of the Budget Committee on this whole exercise.
I supported the idea that we go forward with the consideration of the tax bill this week. The bill was on the calendar. It had been reported, and it seemed a reasonable proposition to finish action on it notwithstanding the President's decision to withdraw from the $50 tax rebate.
I since had some occasion to change my mind about the wisdom of that for reasons I hope I can state briefly.
The complications for the budget process not only in fiscal year 1977 but in fiscal year 1978 are such that what we are risking by considering the tax policy this week not only for this year but for the 1978 fiscal year, is impacting the 1978 budget resolution which is on the calendar without full consideration of all of the implications of that resolution.
Mr. President, at the outset of what I am about to say, I ask unanimous consent to have printed in the RECORD a table which shows the fiscal year 1977 and fiscal year 1978 budget impacts, given different assumptions about the pending measure and its success or failure, about the bill as it stands following Finance Committee action, reflecting the impact of the Matsunaga-Packwood floor amendment which I gather we will consider, and another Matsunaga small business amendment which we will be asked to consider and a combination of those.
There being no objection, the table was ordered to be printed in the RECORD, as follows:
[Table omitted]
Mr. MUSKIE. Mr. President, what you see with respect to fiscal year 1978 is this: The deficit that we reported out of the Budget Committee for fiscal year 1978 is $63.2 billion.
If the Kennedy-Bumpers amendment fails, the deficit for fiscal year 1978 becomes $65.4 billion, a rise of $2.2 billion over the budget resolution which is on the calendar.
If the Kennedy-Bumpers amendment passes then the 1978 deficit will be $63.4 billion or $200 million above that in the budget resolution. If we adopt the Matsunaga-Packwood floor amendment to increase the standard deduction, the deficit will rise to $66.1 billion. If there is an alternative to that and we adopt the Matsunaga increased employment credit amendment the deficit rises to $66.2 billion.
So what we may be in the process of doing here is restoring an old habit of this Congress that prevailed for almost 200 years and that is writing congressional budget revenue bill by revenue bill, spending bill by spending bill and abandoning the idea that all ought to be done within the context of an overall budget plan.
I say to you, Mr. President, and colleagues in the Senate, that the $63.2 billion deficit figure in the budget resolution was possible only because the Budget Committee was extremely restrictive on budget spending.
Mr. President, will the Senator yield 2 additional minutes?
Mr. KENNEDY. I yield 2 additional minutes.
Mr. MUSKIE. I expect that there would be pressures in this Chamber to raise functional spending limits to accommodate programs and policies in which Members are interested and we may well yield.
So the $63.2 billion deficit, in my judgment, as a practical matter, looking to the possibilities is a rockbottom figure. So that our decisions on these business tax cuts and our decisions on the Matsunaga-Packwood amendment will have the effect of increasing the deficit projected in the budget resolution.
I understand, of course, that that deficit number has not yet been adopted by the Senate. I understand, of course, that it is not binding on the Senate. But if we pass any increases in the deficit as a result of our consideration of the tax bill then what we do here, I take it, will be regarded as binding on the Senate when we get to the budget resolution and our first step then if we are to be realistic will have to be to raise the deficit level in that resolution even before we consider the functional spending totals.
The Senate ought to understand that. It is not for me to impose a discipline as a result of those facts, except to the extent that the facts themselves may impose a discipline upon Members of the Senate.
Mr. President, will the Senator yield 2 additional minutes?
Mr. KENNEDY. I yield 2 minutes.
Mr. LONG. Mr. President, will the Senator yield for a question on that point?
Mr. MUSKIE. I yield.
Mr. KENNEDY. On whose time?
Mr. MUSKIE. Will the Senator ask it on his time?
Mr. LONG. I shall ask the question on my time.
I understand that the figures I have here are the same ones from which the Senator is speaking and the figures that he will be placing in the RECORD. There are also figures here on the fiscal year 1977 deficit—
Mr. MUSKIE. I have been talking about 1978.
Mr. LONG. The two sets of columns here for fiscal year 1977 start out by showing a deficit, let us say, in the third column of $61 billion, eliminate rebate only; keep business tax cut, deficit $61.5 billion; is that right?
Mr. MUSKIE. Fiscal 1977, that is right.
Mr. LONG. Does that take into account the fact that the administration has now discovered they are going to have $3 billion of tax collections that they had not previously counted and $7 billion less spending than they had anticipated?
Mr. MUSKIE. No. The reestimates have not yet been made final and not yet been submitted to us nor have they as yet been cranked into the scorekeeping process by the Congressional Budget Office. We are aware, of course, that spending is likely to be less than projected although in the most recent months we apparently are back on track with respect to projected spending, and we still have several months in the fiscal year to go, and there is no way of being sure what the spending picture will be as of October 1.
Mr. LONG. My best information is that as of now we are $10 billion better off as far as the deficit is concerned than the administration had estimated, which was about $61.5 billion.
Mr. MUSKIE. May I say to the Senator that is a very risky judgment to make. If we make that kind of a judgment because it suits our purposes with respect to each spending or revenue bill, we will be abandoning the process. No one really knows why, in fiscal year 1976 in the transition quarter, spending did not measure up to projections. Until we have greater certainty on that point, it would be a mistake to assume it will continue forever. Spending fell below monthly projections in this fiscal year until the most recent month, and then it began to hit the target, and may rise above the target in April, May, June, July, August, and September.
So we ought not to change those estimates except in accordance with the orderly procedures that we have developed in the budget process. The $10 billion the Senator is speaking about the President spent 2 weeks ago, and I heard him spend them, when he went on television and said:
Because we have got this $10 billion, we ought to send it back to the people in the form of the $50 tax rebate.
But he changed his mind about that, and I suspect that the $10 billion was just a handy argument that he used at the moment.
OMB has not yet officially told us that in their judgment they would at this point officially reduce the spending projections for this fiscal year, which does not end until October 1.
Mr. LONG. Surely the Senator knows that the President made his request for the $50 tax rebate before he knew about the $10 billion.
Mr. MUSKIE. No, that is not altogether true. That is not altogether true, because we knew that in October, November, and December spending was below projections, but we do not project binding spending totals on a monthly basis. It is tough enough to try to control them on an annual basis and a functional basis. As of January 1, some part of the $10 billion was already visible. Some more became visible on January and February. But then the thing began to turn around; and to make the assumption that as of next October 1, spending for the whole year will be $10 billion below projections, I think, is a very risky business and a temptation we ought not to yield to.
Do I still have 2 minutes of time?
The PRESIDING OFFICER. The Senator has 2 minutes remaining.
Mr. MUSKIE. Let me just address the Kennedy-Bumpers motion briefly, if I may.
With regard to the investment tax credit, Mr. President, I make this simple point: We increased the investment tax credit in 1975, I think, from 7 to 10 percent. It did not result in stimulation of investment. Investment has been relatively low ever since. So there is no reason to conclude that increasing it another 2 percent will add to its stimulating effect.
Second, it is quite clear from the record that not all businesses entitled to additional credits can absorb them. There is evidence to the contrary; and adding another 2 percent just adds to their unabsorbable credits.
So, really, when we have taken action to eliminate tax relief for the average citizen, I see no justification for giving this relief, which will go to the most profitable companies, clearly, simply because, you know, we are sort of committed to it.
On the jobs tax credit, Mr. President, in the first place, the tax implications of that credit have been misstated. What is permitted is a credit of $1,050, but that will substitute for $1,050 in wages paid that would be deductible as a business expense. So really the tax advantage to using it, if a company has a tax rate of 40 percent, is only $630, and I just do not believe that $630 is going to be that much of an incentive.
The PRESIDING OFFICER. The Senator's time is expired.
Mr. MUSKIE. The second point I would make; if I could have another minute: The 103 percent threshold militates against slow growing companies and slow growing regions, because you have to show that employment is 103 percent of the threshold before the industry can qualify. There is a table that ought to go in the RECORD if it has not already — I think it already has — which shows the discrimination or potential discrimination by regions. My region, for example, would be discriminated against.
But more importantly, Mr. President, companies in my part of the country are not likely to put people to work for a year, even with a Government subsidy, unless their market expectations justify it. They are not going to hire people, keep them on the payroll at a subsidized rate for a year, and then keep them on unless their market expectations justify it.
I have never believed a jobs tax credit would succeed. I do not think this one would, either.
The $50 tax rebate and related payment provisions now have been deleted from the tax bill pending before the Senate. If the bill were passed in its present form, it would fall short by over $10 billion of providing the level of economic stimulus agreed upon for fiscal year 1977 by Congress when it adopted the binding third concurrent resolution less than 2 months ago.
The rebate constituted sound economic policy. I believe its deletion will prove to have been a mistake. The econometric models are virtually unanimous that withdrawal of the rebate will slow economic growth in the remainder of the year. Up to 250,000 jobs may be lost, and unemployment will be higher.
Given the deletion of the rebate, I want, as chairman of the Budget Committee, to place the remaining provisions of this tax bill in the context of the concurrent resolution for 1977 now binding on the Congress as well as the first budget resolution for 1978 recently reported by the Budget Committee. In addition, as a Member of the Senate concerned with the equity, simplicity, and efficiency of our tax system, I want to comment on the impact of the specific provisions of the pending bill in achieving these goals.
The third concurrent resolution for fiscal year 1977 specifically assumed up to $10.6 billion of additional economic stimulus in the form of revenue reductions in the current fiscal year, as well as up to $3.2 billion of additional budget authority and outlays for rebate payments to low income individuals and recipients of Federal assistance programs.
The first budget resolution for fiscal year 1978 recently reported by the Senate Budget Committee recommends as a target $18.2 billion in net revenue reductions for the coming fiscal year.
I commend Finance Committee Chairman LONG and the members of the Finance Committee for having reported a bill initially consistent with both the binding third resolution for fiscal year 1977 as well as the recently reported first resolution for fiscal year 1978. I recognize the many pressures for additional tax reductions with which the Finance Committee had to contend, and applaud the restraint shown by the committee, particularly with respect to the impact of its revenue decisions on fiscal year 1978.
The subsequent withdrawal of administration support for its own rebate proposal, and the resulting deletion of the rebate from the pending bill, have created the possibility of very substantial leeway on both the revenue and spending sides of the fiscal year 1977 budget. In addition, approximately $500 million of revenue reductions in the pending bill have been shifted from fiscal year 1977 to fiscal year 1978 due to postponement of implementing the reductions in wage withholding associated with the standard deduction rule changes. As a result, only $2.8 billion in fiscal year 1977 revenue reductions now remain in the pending bill.
The net effect of the tax bill with both the withholding postponement and the rebate deletion offset by decreased revenues from the resulting slower economy, is to leave fiscal year 1977 revenues $5.8 billion above the binding budget resolution revenue floor and leave fiscal year 1978 revenues $1.7 billion below the revenue floor recently recommended by the Budget Committee. The latter solely reflects the lower economic activity in 1978 from the elimination of the rebates in 1977.
With respect to the spending side of the budget, the deletion of the rebate has reduced anticipated fiscal year 1977 outlays and budget authority by $2.5 and $3.6 billion, respectively. These totals differ from the $3.1 billion direct cost of the payments and rebates in excess of liability due to the impact on trust fund revenues and unemployment compensation. The rebate deletion also would have relatively small indirect effects on the spending side of the budget in 1978, reducing budget authority by $0.6 billion and increasing outlays by $0.5 billion.
Although enactment of the tax bill in its present form with the rebate deleted would permit $5.8 billion of additional revenue reductions in fiscal year 1977 before the binding revenue floor were breached, virtually all realistic tax proposals that would lose revenue in fiscal year 1977 would lose proportionately greater amounts of revenue in fiscal year 1978. This is due in large part to the fact that fiscal year 1977 is now almost half over, and revenue reductions made effective for calendar 1977 thus would be largely reflected in refunds paid out in early 1978.
The fiscal year 1978 revenue reductions provided under the bill now before the Senate are very substantial — $18.4 billion compared to current law. This is almost $1.5 billion more than provided in the House version of H.R. 3477, and almost $2.5 billion more than was recommended by the administration. Thus, virtually all attempts to further reduce revenue collections in fiscal year 1977 to use up the room created by deletion of the rebate would increase the already substantial fiscal year 1978 deficit by proportionately greater amounts. In effect, these additional reductions would have to constitute a conscious decision by Congress to increase the $63.2 billion deficit for fiscal year 1978 recently recommended by the Budget Committee by shifting to 1978 some or all of the economic stimulus lost in 1977 by deletion of the rebate. The Budget Committee will be meeting on Friday to consider the congressional budget in light of the deletion of the debate. I will report to the Senate the views of the committee as soon as possible, so that they may be considered in the context of the deliberations on the pending tax bill.
Having now reviewed the budgetary effects of the legislation as a whole, let me now briefly summarize my views on the merits of the major remaining components of the tax bill.
I oppose the business tax relief option provided in the bill. Both the investment credit increase and the employment tax credit will most likely prove largely ineffective. Moreover, the employment credit would add unnecessary complexity to the tax code and discriminate against regions like New England with relatively low employment growth. Additional business tax relief is particularly unjustifiable in light of the Senate decision to delete tax relief for individuals in the form of the rebate.
I favor the simplification and tax reductions resulting from the proposed uniform standard deductions.
Finally, I favor the extension of the 1977 temporary tax reductions through calendar 1978.
BUSINESS TAX REDUCTIONS
The business tax relief option in the Finance Committee bill provides a text book example of what can go wrong with tax legislation. These provisions are inefficient, discriminatory, and, in the case of the employment tax credit, add unnecessary complexity to the Internal Revenue Code for small businessmen already struggling to comply with the growing mass of Federal regulation.
Although the need for increased business investment is clear, recent experience suggests that increasing the investment tax credit from 10 to 12 percent for 4 years most likely would be an ineffective means of accomplishing this result. Investment has remained relatively low in the past 2 years, even though the investment credit was raised from 7 to 10 percent in 1975. An additional increase in the credit to 12 percent is unlikely to be any more effective.
Moreover, careful analyses of past increases in the investment credit unanimously have found that there is a time lag of at least a year before any measurable increases in investment have resulted. Thus, a further increase in the credit as part of this bill is unwarranted and impractical if the purposes of this legislation are to provide short term economic stimulus and tax simplification.
Tax law changes to accomplish the important goal of increasing investment over the long term more appropriately should, and will, be part of the comprehensive tax reform legislation to be considered later this year by the Congress.
Any further increase in the investment credit only could be fully utilized on a current basis by a shrinking fraction of businesses. Under existing law, the investment tax credit available annually is limited for most businesses to $25,000 plus 50 percent of tax liability in excess of $25,000.
Since the credit was increased to 10 percent in 1975, more and more companies are unable to use their full credit potential. Increasing the credit to 12 percent would accentuate this unfairness even further. There is no economic justification for limiting the availabilityof the credit to highly profitable companies with sufficient taxable income to currently utilize available credits.
The most prominent argument for an increased credit has been that it would constitute an important sign of Government concern over business investment. However, the business community is much more concerned with the outlook for increased market expansion in the coming years as well as the threats of inflation, price controls and regulation. These are the principal detriments of investment psychology, rather than a $2.4 billion annual tax reduction derived largely from an increased investment tax credit.
The Finance Committee bill would permit businesses to elect an employment credit in lieu of the investment credit increase through 1978, after which all businesses would receive the 2 percent investment credit increase through 1980. The employment credit would be 25 percent of the first $4,200 of wages for all employees hired over 103 percent of the previous year's employment level. However, the average effective rate of the credit is much lower — more in the 13 to 15 percent range than 25 percent. The lower rate exists because, to the extent the credit is claimed, the ordinary business deduction for wages paid will be denied. Thus, a business entitled to a $1,050 credit for hiring one new employee would lose $1,050 of deductions for salary paid the employee. If the business has a 40 percent tax rate, the net value of the credit to the employer is $630, rather than $1,050, and the effective rate of the credit is reduced from 25 to 15 percent. A $630 onetime tax credit is simply unlikely to result in any significant new employment when average wage costs are $10,000 per employee.
Because the employment credit would apply only for employment in excess of 103 percent of the prior year's level it would be unavailable to companies struggling in declining markets or regions to maintain employment at current levels. On the other hand, expanding companies that have been increasing employment at over a 3 percent annual rate will receive windfalls that will further improve their competitive position over less growth oriented rivals.
The high 103 percent incremental threshold will cause a large portion of the employment credit tax reductions to go to businesses in fast growing sections of the country such as the Southwest, while a disproportionately small segment will go to New England, and the rest of the Northeast. I ask unanimous consent to have a table inserted in the RECORD showing average employment growth on a State-by-State basis over the past decade. It clearly illustrates the discriminatory impact of the 103 percent threshold rule.
There being no objection, the tables were ordered to be printed in the RECORD, as follows:
[Table omitted]
Mr. MUSKIE. No similar discrimination existed in the administration's original proposal for a 4 percent payroll tax credit which would have been available with respect to all employees — both current and new. Moreover, the payroll tax credit would have been extremely simple for businessmen to apply and for the Internal Revenue Service to administer. By comparison, the Finance Committee employment credit is extremely complex. The provision takes up 25 pages of text in the reported bill. A myriad of complicated rules are provided to preclude abuses of the new credit and to implement the 103 percent incremental base and the so-called 105 percent safety net.
The Secretary of the Treasury is expressly required to provide six new sets of regulations concerning the credit, and will probably issue untold additional regulations. All of this will certainly increase employment of lawyers and accountants, but will further deter the use of the credit to stimulate additional employment in any other fields.
STANDARD DEDUCTION CHANGES
In terms of overall revenue reductions in fiscal year 1977 and fiscal year 1978 and in terms of direct impact on individual taxpayers, the standard deduction changes are the most significant provisions in this tax bill. They would reduce revenue collections by $1.5 billion in fiscal year 1977 and $8.2 billion in fiscal year 1978. They would substantially simplify computation of tax returns for all persons claiming the standard deduction — approximately 70 percent of all tax returns. This is a very significant benefit, which must be weighed heavily against offsetting considerations for further study of these proposed changes.
The simplification results primarily from substitution of flat standard deduction levels for single and joint returns instead of the range currently in effect based upon 16 percent of adjusted gross income. The tax reductions result from setting the flat standard deduction levels relatively high, particularly for joint returns.
Substantial changes in the standard deduction are inextricably tied to the tax treatment of personal deductions. The latter are now the subject of intensive review by the Treasury Department as part of the administration's forthcoming tax reform recommendations. While I support enactment of these proposed standard deduction changes at this time, it would not be unreasonable for these changes to be postponed and considered later this year in the context of overall tax reform. Equivalent levels of tax reductions could be provided on a temporary basis through expansion of the temporary general tax credit not in effect of $15 per personal exemption or 2 percent of the first $9,000 of taxable income.
EXTENSION OF TEMPORARY TAX DEDUCTIONS
I strongly support extension through 1978 of the temporary tax reductions now scheduled to expire at the end of 1977. These extensions would reduce fiscal year 1978 revenues by $7.8 billion. The provisions which would be extended include the alternative general tax credit, corporate income tax rate reductions, and the earned income credit. Extension of these reductions is assumed in the fiscal year 1978 budget resolution recently recommended by the Budget Committee. These reductions will have to be continued in order to offset the adverse impact of inflation forcing taxpayers into higher marginal tax brackets.
Mr. LONG. Mr. President, how much time is charged to the Senator from Louisiana?
The PRESIDING OFFICER. The Senator from Louisiana has used 5 minutes, and has 25 minutes remaining.
Mr. LONG. I said I was willing to yield some of my time for my question. I did say to the Chair that I would be willing to charge the time for my question out of my time. I did not want to charge the time for the Senator’s answer. He made a very fine statement, but I do not think that should have been charged to my time, but it ought to be charged to the other side.
The PRESIDING OFFICER. The Senator from Maine has no time, and the Senator from Louisiana said he was willing to use his own time for the question.
Mr. MUSKIE. I say to the Senator from Louisiana that if I had the time, I would be willing to give it back to him, but I do not have it.
Mr. KENNEDY. Mr. President, I ask unanimous consent to give the Senator from Louisiana 5 additional minutes.