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.