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    "title": "Taxes (3)",
    "description": "This file contains materials relating to tax reform, tax cuts, and the President's October 6, 1975 proposal for tax cuts and spending reductions.",
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    "ocrText": "The original documents are located in Box 34, folder \"Taxes (3)\" of the James M. Cannon\nFiles at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 34 of the James M. Cannon Files at the Gerald R. Ford Presidential Library\nDraft\n10/6/75\nGood Evening:\nI have asked for this opportunity to talk with you\ntonight because it is important that all of us begin facing\nup to a fundamental decision about our future.\nFor several years, it has been apparent that America\nwas nearing a crossroads in our history. Today we are\nthere.\nTo put it simply, we must decide whether we shall\ncontinue in the direction of recent years -- the path toward\nbigger Government, higher taxes, and higher inflation --\nor whether we shall now take a new direction -- bringing\na halt to the momentous growth of Government, restoring\nour prosperity, and allowing each of you a greater voice in\nyour own future.\nIf we are to be true to our ideals and our heritage,\nthere can be only one answer.\n- 2 -\nTonight I want to set forth two proposals that taken\ntogether -- as they must be -- represent the answer I\nBellion we must choose.\n60\nFirst, I propose that we make a substantial and\npermanent reduction in our Federal taxes; and,\n-- Second, I propose that we make a substantial reduction\nin the growth of Federal spending.\nLet me emphasize at the outset that these proposals\nmust be tied together in one package. It would be dangerous\nand irresponsible to adopt one without the other, and I\nwill not accept that as an answer for our future. As your\nPresident, I want these proposals acted upon together in\nthe Congress. Together, they represent one central and\nfundamental decision: that America belongs to you, the\npeople, and not to your government.\nEach of you knows from experience about the economic\n- 3 -\nstruggles of recent months. You know what it means to pay\nmore and more of your income just to feed and clothe your\nfamily, to get to work, and to maintain a decent home. You\nknow the fear that strikes the human heart when a friend or\nmember of your family is laid off work. And you know the\nanxiety that comes when these forces seem beyond your own\ncontrol.\nNone of us wants to repeat the experiences of the past\nyear. We want steady prices. We want steady jobs. And\nabove all, we want to have a chance to get ahead again, to\nknow that our destiny lies in our own hands and not-in\nWashington or some other far away place.\nFortunately, there are encouraging signs that we have\nweathered the worst of this storm. The recovery that began\nthis spring is now gathering momentum. If we act wisely, it\nwill continue on an upward path.\n- 4 -\nYet we should not be deceived. All of us must recognize\nthat just beneath the surface there are still deep-seated\nproblems in our economy --- problems that have been building\nup over the years and will not quickly disappear.\nIf you had a car that needed major repairs and you\nasked the local garage to make only minor adjustments, the\ncar might run better for a while but eventually it will\ngive you serious trouble. The same thing is true of our\neconomy. If we make only minor repairs now but fail to\nattack the underlying causes of our economic problems, we\nmay seem better off for a while, but we will be risking far\nmore trouble down the road.\nWe must find answers that serve us not only this year\nbut for years to come.\nHere in Washington, we can help. I know that because\nit is here in Washington that much of America's vitality and\n- 5 -\nprosperity have been drained away. It is here that one big\nspending program after another has been piled on the Federal\npyramid, taking a larger share of your personal income and\ncreating record budget deficits. Here the printing presses\nhave churned out more and more money that is worth less and\nless. Here a massive, often overzealous bureaucracy has\nbeen erected that has become too involved in trying to run\ntoo much of our daily life.\nOver the years, these excesses have played a major role\nin driving up prices, driving up interest rates, and holding\ndown jobs. We do not have to look far for our underlying\nproblems. It can fairly be said that much of our inflation\nas well as our unemployment should bear a label: \"Made in\nWashington, D.C.\"\nAs we emerge from this recession, we thus face the\nbasic choice: Shall we continue these patterns in Washington\nor shall WC set off in a new direction? We cannot do both;\n- 6 -\nwe cannot go down both roads at the same time. We must\nchoose.\nGERALD FORD LIBRARY\nTonight, I propose that we enact into permanent law tax\nreductions totaling $27.7 billion -- the biggest single tax\ncut in our history. Earlier this year the Congress passed\nand I signed a temporary tax cut covering calendar year\n1975. That temporary law will expire at the end of this\nyear and unless we act now, your taxes will go up again in\nJanuary. I am proposing that we sweep away that temporary\nlaw and replace it, effective January 1, with a permanent\nFederal income tax cut that will be both larger and more\nequitable.\nThree quarters of this permanent reduction will be for\nindividual taxpayers. And the chief benefits will be concentrated\nwhere they belong: among working people. The working men\nand women of this country are the backbone of America --\n- 7 -\nsturdy and industrious -- but we cannot continue asking them\nto bear an unfair portion of the tax burden. I propose\nthat we lighten the tax load for them and for all other\nAmericans in three ways:\n-- By raising everyone's personal tax exemption from\n$750 to $1000;\n-- By raising the minimum standard deduction for single\npeople to $1800 and for married couples to $2500; and\n-- By lowering our basic personal income tax rates.\nTogether, these measures will not only decrease everyone's\ntaxes but they will also help to make up for the ravages of\ninflation and they will simplify the tax returns for millions\nof Americans. The total package represents a substantial\nreduction below the rates that will otherwise take effect\nthis January. Under my proposal, a family of four earning a\ntotal of $14,000 a year -- now the average income in the\n- 8 -\nUnited States -- would be entitled to a permanent tax reduction\nof $412 a year -- a 27 percent reduction.\nGLRALD FORD LIBRARY\nThe other quarter of the tax reduction will be directed\nat business in a way that creates more jobs. If companies\nand plants are to regain their footing and to hire more\nemployees in the future, they must have greater incentives\nfor investment and they must be allowed some reduction in\ntheir tax rates. In order to create jobs -- good jobs --\nthis country must build new plants and new equipment and we\nmust have a growing economy. The tax cuts that I am proposing ---\nincluding a permanent increase in the investment tax credit\nand a two percent reduction in the corporate tax rate -- are\nspecifically designed for that purpose.\nBut let us recognize that cutting taxes can be only\nhalf the answer. If we cut only taxes but do not cut the\ngrowth of government spending, budget deficits will continue\n- 9 -\nto mushroom, the Federal Government will continue to borrow\ntoo much money from the private sector, we will have more\ninflation, and ultimately we will have more unemployment.\nSubstantial cuts in your taxes must be tied to substantial\ncuts in the growth of government spending.\nAnyone who has followed the upward leap in Federal\nspending can only shake his head in astonishment. Back in\n1962, the Federal budget for the first time in our history\nran over $100 billion. In only eight years, however, the\nbudget doubled in size. And now in the coming fiscal year,\nunless we act, it will double again to over $400 billion.\nOne of the reasons for this horrendous growth is that\nmuch of the increase in each year's budget is required by\nprograms already on the books. Many of these programs were\nfirst enacted years ago, and while individually they might\nhave seemed manageable then, today -- taken together --\n- 10 -\nthey are out of control. They are like a freight train\nwhose lights were first seen far off in the night. That\ntrain has been coming closer and closer, and now it is\nFORD LIBRARY\nroaring down upon us. If we don't slow it down, Federal\nspending next year could easily jump to $420 billion or\nmore -- and that is without a single new Federal program.\nTherefore, I propose tonight that we halt this alarming\ngrowth by holding spending in the coming year to $395 billion.\nThat means a cut of $25 billion below what we will spend if\nwe just stand still and let the train run over us. More\nimportantly, it means almost a dollar-for-dollar cut in\ntaxes and spending: for every dollar that we return to the\nAmerican taxpayer, we must also cut our projected spending\nby the same amount.\nIf WC allow \"politics as usual\" to prevail in the Congress,\nthere will be a temptation to take the easy way out, approving\nthe tax cuts and taking no action on the spending cuts.\n- 11 -\nThat must not happen, and I intend to stop it. I want to\nmake it clear that I will go forward with the tax cuts that\nI am proposing only if there is a clear, affirmative decision\nby your representatives in the House and the Senate that\nthey will also hold spending next year to $395 billion. I\nwill not hesitate to veto any measure passed by the Congress\nwhich violates the spirit of that understanding. I want\nthese actions to be a first step -- and they are a crucial\nstep -- toward balancing the Federal budget within three\nyears.\nThis programme\nIn January, I will present to the Congress. a request\nthat no new spending programs be enacted and that many of\nour current programs be held below their projected levels.\nWhen I do, you will hear immediate protests from one group\nor another contending that Washington should keep up an\nendless flow of benefits and subsidies. But we have to face\nhard realities: our resources are limited. We must learn\n- 12 -\nto live within our means.\nSpending discipline by the Federal Government must be\napplied across the board. It cannot be isolated to one area\nsuch as social programs nor can we completely insulate any\narea such as defense. All must be restrained. I believe\nthat your Congressmen should stop trying SO hard to find new\nprograms that spend your money, and get to work figuring out\nhow to make the old programs work better. We should get rid\nof the programs that don't work in order to make room for\nthose that do. And in the process, we can begin cutting\nback the swollen Federal bureaucracy.\nLet me emphasize that what I am proposing is not a\nreduction in current spending but in the gigantic increases\nthat will take place next year unless we act decisively. I\nwant to work with the Congress and with you, the people, to\ninsure that those who deserve the help of our nation continue\nreceiving that help. We do not intend to cure the ills of\nthis economy at the expense of the elderly, the poor,\n- 13 -\nor the men and women who have borne our nation's arms. There\nwill be no cutbacks in social security. Similarly, I will\nnot permit reductions in any part of our defense budget that\nwould jeopardize our national security. We must maintain\na strong national defense and a strong economy.\nSometimes when fancy new spending programs reach my\ndesk, promising something for almost nothing and carrying\nappealing and often deceptive labels, I wonder who the\nsupporters think they're kidding. From my visits with the\nAmerican people, I find most of them believe that what the\ngovernment puts in your front pocket, it slips out of your\nback pocket through taxes and inflation. They are figuring\nout that they are not getting their money's worth from their\ntaxes. They believe that the politics of Federal spending\nhas become too much of a shell game. And I must say that I\nagree with them.\nAmerica's greatness was not built by taxing people to\n- 14 -\ntheir limits but by letting them exercise their freedom and\ntheir ingenuity to their limits. Freedom and prosperity go\nhand in hand. The proof is there to see across the globe.\nOnly by releasing the full energies of our people -- only by\ngetting the government off your back and out of your pocket --\nwill we achieve our goals of stable prices and more jobs.\nMy Fellow Americans, I deeply believe that our nation\nmust not continue down the road we have been traveling.\nDown this road lies the wreckage of many great nations\nof the past. Indeed, we see today in our own land that\nour biggest city -- a great city -- has now reached a day\nof reckoning. None of us wants to see that city fail;\nall of us care especially about the people of that city.\nBut as they work to get back on the right path, let us\nnever forget what led that city to the brink; and let us\nVOW that these United States will never reach that same\npredicament.\n- 15 -\nLet us choose instead the other fork -- the road that\nwe know to be tested, the road that will work.\nAs your President, I cannot take this journey alone.\nI need the help of you, the American people, to persuade\nyour Congressmen and your Senators that you want your taxes\ncut and that you want the growth in spending cut -- now.\nI need the help of the farmer in Iowa, the housewife in\nCalifornia, the retired couple in Florida, the small businessman\nin New Jersey, the student in Texas -- all of you. This\nmust be a national effort. America should not belong to the\ngovernment but to the people; and now you must serve the\nNation by helping us to make the right choice for the future.\nThank you and good evening.\nEMBARGOED FOR RELEASE\nOCTOBER 6, 1975\nUNTIL 6:01 P.M. EDT\nOFFICE OF THE WHITE HOUSE PRESS SECRETARY\nTHE WHITE HOUSE\nPRESS CONFERENCE\nOF\nWILLIAM E. SIMON\nSECRETARY OF THE DEPARTMENT OF TREASURY\nJAMES T. LYNN\nDIRECTOR OF THE\nOFFICE OF MANAGEMENT AND BUDGET\nALAN GREENSPAN\nCHAIRMAN OF THE\nCOUNCIL OF ECONOMIC ADVISERS\nAND\nCHARLES WALKER\nASSISTANT SECRETARY OF THE TREASURY\nROOM 450\nEXECUTIVE OFFICE BUILDING\n5:44 P.M. EDT\nMR. NESSEN: I don't know who the leader of this\ngroup is.\nSECRETARY SIMON: I will start.\nYou know the President has been working for several\nweeks on questions relating to Federal taxes and spending.\nTonight, he has asked for television time, which Ron just\nspoke to.\nFirst, as you can see from the fact sheets, the\nPresident is going to propose a substantial and permanent\nreduction in Federal taxes, going far beyond the temporary\ntax cut that expires at the end of this year. The total\ncut will be approximately $28 billion, approximately three-\nquarters for individuals and one-quarter for business.\nSecondly, he is going to propose a substantial\nreduction in Federal spending, below those levels that are\nprojected for fiscal year 1977. Jim Lynn is going to\nelaborate in a second, before your questions.\nFederal spending will, in fiscal 1977, easily\nsurpass $420 billion unless affirmative action is taken, and\ntaken right now. The President is asking that the spending\nbe held in fiscal 1977 to $395 billion, a reduction of an\nequivalent amount of $28 billion.\nMORE\n(OVER)\n- 2 -\nI want to emphasize how important it is that\neveryone understand that these two proposals are regarded\nas one package. The President is going to ask Congress\nto act on them both now, and he is insisting that only if\nCongress is willing to adopt a spending ceiling for fiscal\n1977 will he go forward with these major taxcuts.\nIt would be dangerous and irresponsible to cut\ntaxes andnot cut the growth in Federal spending. That would\nonly leave us with huge deficits, higher interest rates and\nmore inflation and eventually more unemployment.\nSo, the two proposals are inextricably tied\ntogether, and we are presenting them as one single package.\nTogether, they are designed to return more economic decision-\nmaking to our private sector.\nThe President is going to address more fully\ntonight why it is important to halt the trend toward big\nGovernment in this country. In this session, I want to talk\nmore specifically about three particular advantages of this,\nwhat we consider balanced fiscal package: the economic\nadvantages, the financial advantages and the psychological\nadvantages.\nFirst of all, on the economic side, in the short-\nterm this package will provide us with a stronger foundation\nto sustain the momentum of our current recovery. In the\nlong-term, the discipline imposed upon the growth in the\nbudget will reduce the inflationary pressure generated by\nFederal spending.\nThere can be no question that curbing the\nexplosive growth is an essential weapon in the long-term\nfight against inflation. Furthermore, by reducing taxes,\nas well as spending, we will also encourage greater savings\nand investment, a process that is imperative if we are to\ncreate jobs and increase productivity and increase real\nearnings in this country.\nIn short, it is going to provide a higher standard\nof living for all of us.\nSecond, this program will improve conditions in the\nfinancial markets. By tying spending cuts to tax cuts, the\nPresident is insuring that during the next few years our budget\ndeficits will be progressively smaller and the Federal\nGovernment will not soak up as much money through borrowing\nin our private capital markets.\nFor all practical purposes, too many small- and\nmedium-sized businesses are crowded out of our capital\nmarkets today. By reducing Federal borrowing, the Government\nwill reduce the upward pressure it places on interest\nrates. Lenders are going to be more willing to lend long-\nterm and more private borrowers are going to gain access\nto the credit markets.\nMORE\n- 3 -\nAgain, this process is essential for assuring\nlong-term economic growth. As the President will say\ntonight, our ultimate objective is to bring the budget into\nbalance within three years.\nPsychological: Finally we have to take into\naccount the public's perception of Government itself.\nClearly, public confidence in the Government's ability to\nreduce inflation has been eroded by the last decade of huge\nincreases in Federal spending, along with the huge increases\nin our budget deficits.\nOver time, that process has built inflationary\nexpectations into all of our society. The President is\nintent upon changing those expectations through this\nporgram and further efforts in the future.\nLet me re-emphasize the determination of the\nPresident and the full Administration to stop the uncontrolled\ngrowth of Government outlays and to return to the American\npeople more of the decision-making on how their incomes are\ngoing to be spent.\nUnless action is taken, Federal Government spending\ncan be expected to increase by approximately $53 billion in fiscal\n1977. Outlays as a share of GNP will continue to rise.\nOutlays in fiscal 1977 would reach $423 billion. Roughly,\nfour and a quarter times higher than outlays just 15 years\nago.\nThe President's program is designed to restrain\nthis growth and to reduce the share of GNP going into the\nFederal Government. This plunging process is vital to the\neconomic and financial well being of our people.\nI might add that in my recent testimony before\nthe Congress, I have been heartened by the desire expressed\nby both budget committees to work with us in holding down\nspending and holding down the attendant deficits.\nWe hope that the full Congress is now going to\njoin with us in adopting this very important package that\nthe President is submitting.\nNow Jimmy would like to, I am sure, address the\nexpenditure side.\nMR. LYNN: Bill, I think you have covered it\nsufficiently for openers. I would, kind of reversing the\nroles a little bit, draw your attention specifically to the\ntables that are included in the fact sheet showing the\nimpact on the various families.\nMORE\n- 4 -\nWhat we have here is a situation where practically\ndollar for dollar, if you compare the 1974 law before the 1975\ntemporary cuts were put in, of a dollar for dollar reduction\nin the expenditures from where they would have gone without\nrestraing for a comparable amount of benefit on the side\nof tax reductions.\nI think at this point, unless Alan, you have some-\nthing to add, why don't we let these ladies and gentlemen\nask their questions. That is the most important thing.\nQ\nOn those very tables you mentioned, can\nwe have some figures below $5,000 of income, and why weren't\nthey supplied in the first place?\nMR. WALKER: I think we have them not below $5,000\nbecause of the non-change that is involved there.\nQ Not for single people. There are changes, some\nof whom are tax exempt now, and I am wondering if they\nwould still be tax exempt under this proposal?\nMR. WALKER: I can see that.\nSECRETARY SIMON: I can show you that, Eileen,\nbecause I have a table that shows you the new tax exempt\nincome for singles and marrieds.\nQ\nMr. Secretary, you say these proposals of\ntax and spending ceilings are linked. Are they going to\nbe linked in their presentation to the Hill, and is there\nany way that this can be done through the statutory\nprovisions?\nSECRETARY SIMON: What the President is going\nto do is urge the Congress to adopt a spending ceiling\nfor fiscal year 1977 of $395 billion. At that point, he\nwould accept the tax reduction as outlined here on the\ntax side.\nQ\nIs the President going to save $28 billion?\nQ Will it be something informal? You are not\ngoing to propose a tax bill to Ways and Means that would\nhave a spending ceiling tied into it?\nSECRETARY SIMON: The Ways and Means Committee\nwill be told the conditions under which we would accept\nthis type of a tax proposal, that is correct.\nQ\nDoes that mean that if the Congress will not\nvote your ceiling that the President will oppose and perhaps\nveto tax cuts in the coming election year?\nMORE\n- 5 -\nSECRETARY SIMON: If the Congress rejected the\nnotion of putting a $395 billion spending limit on the\nfiscal 1977 budget and sent down a tax bill here, in this\nregard this President would veto it.\nQ\nCan I follow that? From a practical stand-\npoint, however, isn't it likely that we would act on\nthe tax cut this fall? They don't have to take up the\nquestion of the ceiling until next year.\nSECRETARY SIMON: I want Jimmy to talk to this,\ntoo. We think they have got plenty of time in the three\nmonths that are remaining. They have been working for\nseveral months, the budget committees, on fiscal 1976.\nThey have the figures for 1977. We are going to be\ndelighted to work with them on processes.\nMR. LYNN: I suppose they could do almost anything,\nyou are right. They could delay, but it seems to me the\ndelay will cost the taxpayers money. What our hope would be\nis that they take action on both sides of this equation now\nso that the taxes can take effect -- the cuts could take\neffect -- as of January 1.\nQ\nThe question did not suggest that they would\ndelay on voting the tax out, but after all, they, just\nwithin the last few weeks, set the ceiling on fiscal 1976,\ndidn't they? So, is it reasonable to expect them to set\na ceiling on fiscal 1977 this fall?\nMR. LYNN: I most certainly think it is. First,\nlet me say I have been testifying before the Congress that\none of the things that have disturbed me so much is that\nI see consideration of various programs before the Congress,\nincluding consideration of extension of the tax cut without\nany figures being explored with respect to what the effects\nare in fiscal year 1977.\nJust to give you an example, the President vetoed\nthe education bill. The effect of that override of his\nveto is to add almost $1 billion to expenditures in fiscal\nyear 1977.\nWe don't see, frankly, how they can take action\nwith respect to the taxes without setting for themselves\nnow a target, as we have done.\nQ\nMr. Lynn, you have got $53 billion worth of\nexpenditures detailed here. Are you now, or is the President\nlater, going to send up a list of specific cuts of the total\n$28 billion, or are you leaving that all to the Congress?\nMR. LYNN: Oh, no. Of course we will. We are\ndoing that in the budget process. What we are doing now is\nour usual budget review that occurs this time of year. This\nbudget will be presented to the President, he will make his\nchanges in it, and all of those cuts will be expressly set\nforth in his January budget for fiscal year 1977.\nMORE\n- 6 -\nQ\nIn order for Congress to take action now,\ndon't you have to provide a list of where you want the\n$28 billion cut?\nMR. LYNN: No, I don't think SO. My own feeling\nabout that is that Congress can adopt an overall ceiling\nto show their concurrence with this approach of trying to\nmoderate the growth of Government and give the American\ntaxpayers a break without having their detailed make-up.\nWe have done enough work in the course of the last months\nto see that it can be done. Now, very frankly, the\nexact ways that it should be done should be to determine\nin concert with the departments and agencies\nThey have a principal role here and we want to see\nthat they play those roles and will develop that budget\njust like the budget committees will be working on details\nof their budget when they see the President's budget.\nAll we are asking at this point is that they adopt\nan overall ceiling, not the make-up of that ceiling.\nQ\nMr. Lynn, as you know, many previous\nAdministrations have been frustrated by trying to impose\na firm ceiling on Congressional spending and I suppose one\nreason for that is that many of these spending programs\nare open-ended in their appropriations impact. How do you\nspecifically plan to deal with such problems where Congress\nauthorizes spending under a program and sets no ceiling\nas long as people qualify?\nMR. LYNN: You mean so-called entitlement programs\nwhere anybody that qualifies can come in.\nI think what it takes in that area is legislative\naction. It takes affirmative legislative action. You are\nabsolutely right, that does not lie within the control of\nthe President. That is why he is calling on the Congress\nto join him in this effort.\nThis cannot be done by the President acting alone,\nit does require the cooperation of the Congress.\nQ\nMr. Simon, glancing quickly at the figures\nhere, it does seem that the higher the income, the larger\nthe tax reduction, and it also seems that a special provision,\nsuch low income allowance from the 1975 laws, is now being\neliminated. Is that the general thrust of this proposal\nby the President?\nMORE\n- 7 -\nSECRETARY SIMON: In general. You have to go through\nand take a look at the singles and the marrieds and how the\nvarious dependents are affected. Basically, the maximum\nbenefit does not come at the maximum income. With the cut-\noff the maximum benefit is approximately the $25,000 income\nlevel and, naturally, there is some flow-throus effect from\n(A) a combination of the 1975 tax reduction, plus the mag-\nnification.\nNow, let me explain to you what magnification is.\nThe 1975 tax reduction was for an 8-month period; that was\n$8 billion for individuals. In order to annualize it for\na 12-month period we had to make it $12 million so that\nis 50 percent larger. We then added, of course, the $8.6\nbillion more and provided this restructuring, removing, as\nyou said, Phil, that to simplify, just have a single\nstandard deduction.\nQ\nMr. Simon, does this package have your full\nsupport?\nSECRETARY SIMON: Wait a minute. Alan wants to\nadd something to that.\nMR. GREENSPAN: I think if you will take the\npercentage changes in tax liability, they start the highest\nat the lowest level and they proceed downward thereafter\nthroughout the whole tax schedule so that I would say the actual\npercentage change in taxes is very small at the bottom end\nof the scale.\nSECRETARY SIMON: Let me give it to you in the\nzero to $5,000 area, the percentage reduction in tax liability\nis 61.3 percent.\nQ\nCompared to which year?\nSECRETARY SIMON: That is with the tax reduction\nproposals at 1975 levels of income, Eileen.\nQ\nBut compared to 1975 law or --\nSECRETARY SIMON: That is compared to the 1972-4\nlaw before the 1975 change.\n$5,000 to $10,000 the tax reduction in tax liability,\n35 percent; 23 percent in the $10,000 to $15,000; 17.7 in\nthe $15,000 to $20,000; and 11.7 in the $20,000 to $30,000\nso that you can see --\nQ\nLet's have that compared to the 1975 law.\nQ\nAre you talking about the dependents now or\nsingle?\nMORE\n- 8 -\nSECRETARY SIMON: That is the income distribution\nof the President's tax reduction proposal. That is overall.\nQ\nWhat was the last figure?\nSECRETARY SIMON: 11.7 in the $20,000 to $30,000.\nQ\nCan we have those compared to present law;\nthat is, 1975 law?\nMR. GREENSPAN: It will show the same.\nQ\nLet's have the numbers.\nSECRETARY SIMON: We don't have the numbers\ncompared to the 1975 law. We have it magnified but that would\nnot show the same as the 1975 laws that exist today. We have\nit magnified to the -- you know, adding the $4 billion, the\n50 percent on and the percentages change at that point but\nstill heavily weighted and we only have it on the percentage\nreduction -- no we don't have the specific one you say to\nthe existing 1975 tax law.\nQ\nAre all these cuts permanent or only some of them\npermanent and some of them temporary?\nSECRETARY SIMON: No, this is a permanent tax\nreduction recommendation by the President.\nQ\nMr. Secretary, what is the economic situation\nthat has caused you to decide not only to continue the 1975\ntax reductions but to increase them substantially?\nSECRETARY SIMON: When we talk about the\neconomic situation, what we are trying to do,as I say,\nis control the explosive growth, as I said in my opening\ncomments, and in Federal spending.\nQ\nThat is nine months after the start of the\ncalendar year.\nSECRETARY SIMON: We are talking about fiscal\nyear 1977 as well and I, myself, have always personally\nfavored tax reductions to return the decision-making\nback to the American people if at the same time we can\nhave a simultaneous reduction in expenditures, permanent\nreduction.\nQ\nBut the permanent reduction, as I understand\nthe program, does not apply to the months immediately ahead.\nIt only applies to fiscal 1977.\nSECRETARY SIMON: No. Obviously the six months\nimmediately ahead for the half a year would be a continuation.\nNo, until July 1.\nMORE\n- 9 -\nQ\nDon't you have a transition quarter?\nSECRETARY SIMON: Well, the investment tax credit\nof course is 1977.\nQ\nDoesn't fiscal 1977 start October 1?\nMR. LYNN: October 1 of next year.\nQ\nSo it is nine months.\nMr. Simon, could you tell us then what the\neconomic factors are that would make you decide to do this?\nSECRETARY SIMON: Well, I tried to outline it... that\nthere were economic and psychological and, of course,\nfinancial market-related reasons why we should reduce this\ngrowth in spending and reduce the deficit,as I said in my\nopening remarks.\nQ\nWell, does the recovery seem inadequate?\nSECRETARY SIMON: No, it most certainly does not.\nAs I believe Alan's last report, the third quarter growth\nwill be reported in the next couple of weeks and is going to\nshow strong real growth -- I think stronger than anyone had\noriginally predicted, and that real growth is projected.\nThe average real GNP growth through June 30, 1976,\nwe can say is still roughly 7 percent.\nQ\nMr. Secretary, did I understand you correctly\nearlier that you said the President would veto a tax cut\nif it were not accompanied by the other?\nSECRETARY SIMON: That is correct. If the Congress\nsent down a tax reduction for a year or permanently in the\nabsence of adopting a spending ceiling for fiscal 1977 of\n$395 billion, he would veto it.\nMORE\n- 10 -\nQ\nAren't you almost certainly getting into a\nsituation, given the way the whole tax thing has gone so far,\nthe way the whole energy thing goes, that you will get a\nproposal from the Congress for a tax cut, of at least as large\nas yours, possibly larger, and heavily weighted to the bottom\nof the scale, and you will get the other deferred completely\nfrom consideration until some later date so you won't have\na yes or no and you will sit in this limbo and then the\nPresident has. to make a decision?\nSECRETARY SIMON: I would certainly hope you are\nwrong, and as I say, the President has made a decision as\nfar as what he would do, if indeed that happened, and a\ntax bill came down. I think that (a) the way this tax\nproposal has been structured, and (b) the need for a curb\nin Federal spending is well recognized on Capitol Hill,\nas it isin the Executive Branch of Government, so I am\noptomistic that we are going to get some action on a\n$395 billion spending ceiling.\nQ\nWhat form would the spending ceiling take?\nWould it be a budget resolution to the procedures that\nare now in place?\nSECRETARY SIMON: Yes, it would be what, the\nsecond current\nMR. LYNN: I would think they could do it any\nnumber of ways. One way would be by a resolution of the\nCongress. Another way. would be in the preamble to the\ntax legislation. I would not purport to tell or even\nsuggest the manner in which Congress can do it, but I am\ncertain there are a number of ways that they can do it.\nNow, it is the matter of their will to do it if\nthey decide to do it. If a majority of both Houses decide\nto do it, they will find a way to do it, and there are ways\navailable.\nQ\nThe Budget Reform Act reserves jurisdiction\nin the Senate and House budget committees. The Ways and\nMeans Committee does not have anything to do with spending.\nMR. LYNN: Again, I would hope that what we will\nsee in the Congress is a coordination of those efforts. As\nI have said, even in testimony I believe it was before the\nHouse side that one of the things that bothered me was that\nwe were seeing a mark up with regard to a tax extension at\na time prior to even the mark up for fiscal year 1976 on\nthe budget side and on the second concurrent resolution.\nI happen to feel you have got to look at 1977\nnumbers every bit as much as you have to look at 1976\nnumbers when you are deciding what the taxation structure\nought to be from here on out, and that decision is before\nCongress because the old temporary cut runs out December 31.\nMORE\n10 -\nQ\nAren't you almost certainly getting into a\nsituation given the way the whole tax thing has gone so far,\nthe way the whole energy thing goes, that you will get a\nproposal from the Congress for a tax cut of at least as large\nas yours, possibly larger, and heavily weighted to the bottom\nof the scale, and you will get the other deferred completely\nfrom consideration until some later date so you won't have\na yes or no and you will sit in this limbo and then the\nPresident has to make a decision?\nSECRETARY SIMON: I would certainly hope you are\nwrong, and as I say, the President has made a decision as\nfar as what he would do, if indeed that happened, and a\ntax bill came down I think that (a) the way this tax\nproposal has been structured, and (b) the need for a curb\nin Federal spending is well recognized on Capitol Hill,\nas it isin the Executive Branch of Government, so I am\noptomistic that we are going to get some action on a\n$395 billion spending ceiling.\nQ\nWhat form would the spending ceiling take?\nWould it be a budget resolution to the procedures that\nare now in place?\nSECRETARY SIMON: Yes, it would be what, the\nsecond\ncurrent\nMR. LYNN: I would think they could do it any\nnumber of ways. One way would be by a resolution of the\nCongress. Another way, would be in the preamble to the\ntax legislation. I would not purport to tell or even\nsuggest the manner in which Congress can do it, but I am\ncertain there are a number of ways that they can do it.\nNow, it is the matter of their will to do it if\nthey decide to do it. If a majority of both Houses decide\nto do it, they will find a way to do it, and there are ways\navailable.\nQ The Budget Reform Act reserves jurisdiction\nin the Senate and House budget committees. The Ways and\nMeans Committee does not have anything to do with spending.\nMR. LYNN: Again, I would hope that what we will\nsee in the Congress is a coordination of those efforts. As\nI have said, even in testimony I believe it was before the\nHouse side that one of the things that bothered me was that\nwe were seeing a mark up with regard to a tax extension at\na time prior to even the mark up for fiscal year 1976 on\nthe budget side and on the second concurrent resolution.\nI happen to feel you have got to look at 1977\nnumbers every bit as much as you have to look at 1976\nnumbers when you are deciding what the taxation structure\nought to be from here on out, and that decision is before\nCongress because the old temporary cut runs out December 31.\nMORE\n- 11 -\nQ Would you buy a sense of the Congress reso-\nlution, or would it have to be binding law?\nMR. LYNN: Look, after all, the budget resolution,\nfor example, is a sense of the Congress in the sense that\nthey are setting their preliminary target for the existing\nyear. I would suggest they can use the same procedure\nthat they have used for their budget resolution process,\nif that is the way they care to do it, but we certainly\nwould not want to suggest that one way or another is\nabsolutely essential.\nSo long as that signal comes through strongly from\nthe Congress to the American people and to the President that\nthey are willing also to work to keep that $395 billion\nceiling, that will do the trick.\nQ Mr. Secretary, could I come back to Joe\nSlevin's question?\nQ Mr. Secretary, the ceiling you are recommending\ndoes not become effective until the fiscal year beginning\nOctober 1, 1976. What effect, if any, do you suggest this\nshould have on appropriations matters before the Congress\nfor this fiscal year current and for the interim period\nbetween July 1 and October 1? Wouldn't that require\nsome cutback so you have an estimate?\nMR. LYNN: As you know, we already still have\nbefore the Congress requests for reductions from what a\ncurrent services path would take you or even more from\nthe path Congress seems to be on on both the authorization\nbill and appropriation bills. I would hope that at the same\ntime -- or I should say in keeping with their agreement to\nalso work with us on the $395 billion ceiling -- they would\nstart looking very hard and adopt the kind of proposals for\nmoderation for 1976 that we have proposed.\nAs you know, now that we are well into the fiscal\nyear, a number of those can't be recaptured for the period\nof time that has already elapsed, but there is still plenty\nof room for them to exercise budget restraint for the\nrest of the year, and we would urge them to do so.\nQ\nSecretary Lynn, getting back to Joe Slevin's\nquestion about economic rationale for the program and can\neither you or Mr. Greenspan elaborate on that; specifically,\nis this program supposed to have a net fiscal stimulus?\nQ\nQuestion?\nMORE\n- 12 -\nSECRETARY SIMON: Is this program supposed to have\na net fiscal stimulus?\nThis program has, as I said, three parts to it:\nOne, to help sustain the current economic advance. I think\neveryone is pretty generally agreed right now -- that private\nas well as the Government forecasters -- that the economic\nrecovery is well underway and it is going to be strong and\nindeed vigorous here in the early months of the recovery and\ninto the next year.\nThe questions that seem to be raised right now are\nwhat indeed is the third quarter? Some are even questioning\nthe second quarter of the calendar year 1976.\nAlso, a program like this helps to lessen the strain\non the financial system by reducing the inflation itself\nover the long-run and more importantly, the inflationary\nexpectations as people begin to realize that we are getting\na handle on this budget deficit problem, that we are not going\nto allow this explosive growth in Federal expenditures to\ncontinue at the very larger percentages that they have, and,\nfinally, and just as importantly, to slow the secular Federal\nGovernment inroads into the lives by returning the money\nto the American people that is now being presently spent by\nthe Government.\nAlan, would you like to add to that?\nQ Before you go, Mr. Secretary, on your point\nthat they helped to sustain the economic advance, how do you\nhelp sustain the economic advance when you cut expenditures\nby the same amount that you reduce taxes?\nSECRETARY SIMON: Well, on a simple accounting\nbasis one might say that that has, as I say on a simple\naccounting basis, a neutral effect but I am afraid that\nignores the incentive gain of what happens when this amount\nof money or any amount of money is pumped into the private\nsector and into business creating all of the capital\nformation which is so terribly needed, as you have heard\nme say quite often, and I believe it has very definitely\na net positive effect.\nAl, do you want to add to that?\nMR. GREENSPAN: We have taken the specific proposals\non a quarter-by-quarter basis and got some of them through\nby various numbers of techniques including the regular macro-\neconometric types of procedures.\nMORE\nbeing 9W 9W 1890\nverit as atosqmi [sionant] 13\nsmetxe of .themyolqme bns nottouborg to\nsven 9W tedt Issio of befist 9W\nStatistically, what we get is slightly larger deficits\nin the next two to three quarters of 1976 calendar year\nand then somewhat lesser thereafter.\neved ob SW The amounts involved are not large and, in any\nevent, I would. scarcely describe the effects as being\n-smolearly affecting the economy one way or the other. This\nparticular program has not been tructive for the purposes\nof affecting the short-run economic recovery in the usual\nclassic sense of the word. The major problem which it has\nattempted to confront is something which anybody who has\nlooked at the extraordinarily burgeoning effect of the rise\nof Federal expenditures as you get into fiscal 1977, 1978,\n1979 -- what you begin to basically recognize is that at some\npoint some basic decision must be made.\nэяом\nEither we are going to decide to continuously increase\nthe size of Government and ultimately increase taxes in the\nwhole control of the Federal Government of the economy as a\nwhole, or we decide that is the way in which we do not wish to\ngo. The essential thrust of this program I would describe,\nwhile certainly having short-term effects, as any program\nmust, was not constructed in that light and its basic thrust\nis longer term.\nIt's short-term economic effects, as the Secretary\nhas just said, are roughly neutral. The reason I say roughly\nis the fact that some people are going to evaluate part of\nit as positive and part of it as negative and I think others\nwill do precisely the reverse. There is no major impact\nso far as I can see from anybody's evaluation.\nQ Mr. Greenspan, could you, if you have these\nnumbers, tell us what the net effect would be for the\nfirst, second and third quarters in terms of adding to\nexpendable income? I guess we don't have to do anything\non the Government spending side since there will not be any\nreductions during those first three quarters.\nSecondly, isn't that in fact the stimulus?\nMR. GREENSPAN: Well, the problem that you have\ngot is that at this particular point it is not clear to what\nextent you in fact create stimulus from increasing deficits.\nLet me suggest to you that we have the conventional wisdom\nwhich always says that the greater the deficit, the greater\nthe stimulus, the greater the level of employment. That is\ntrue only in the very restricted confines of our econometric\nmodels which, of necessity, is a very extraordinary abstraction\nfrom reality.\nWe have found, as you are no doubt well aware, that\nthese models have not captured many of the\nthings that\nhave gone on in our economy in recent years and most speci-\nfically in the financial area.\n- 14 -\nAs best we try, and we tried extraordinarily hard,\nto capture these very subtle financial impacts as they affect\nthe levels of production and employment. To the extent that\nwe have failed to do that, it is clear that what we have done\nis underestimated the negative impacts of the so-called\nexpansionary policies on interest rates, on inflation and,\ntherefore, on real growth.\nSo what I am suggesting is that while we do have these\nvarious sorts of figures which you discuss, I would not,\nby any means, describe simply the fact that we do have some-\nwhat higher deficits in fiscal year 1976, specifically the first\nthree calendar quarters, as being ipso facto stimulus.\nMORE\n- 15 -\nMR. LYNN: If I might just add one thing to that,\nif I can, when you look at the figures we have here with\nregard to fiscal year 1976 expenditures, we are making\nsome guesses, some estimates as to where Congress is moving.\nWith the kind of restraint I talked about a little\nbit earlier, that amount of expenditures for fiscal year\n1976 could be kept lower than that, and I would hope also get\nthe difference I cite lower than the number we show there.\nQ\nJust one more question. We are going to have\n$21 billion of $28 billion tax cut effective by October 1\nso you have a net increase of money in the spending stream\nof $21 billion. You are not having any reduction in spending\nduring that same period so, in effect, don't we have a $21\nbillion stimulus for the first three quarters? That is the\nquestion I have.\nMR. GREENSPAN: No, I am not sure those numbers\nare correct.\nQ\nExcuse me. I think to answer that question we have\nto be given the numbers. This table that adds up to $27.20,\n$.7 billion you talk not in terms of the comparison\nwith 1974, but in terms of present law. Can we have those\nnumbers, just that little five or six item breakdown on\npage two here?\nSECRETARY SIMON: We can get those numbers for you.\nThe reason that we didn't do it on the figures that you\nwish is because the 1975 tax laws are temporary law.\nQ\nJust a second.\nMr. Greenspan, is it reasonable or even rational\nto compare what you are proposing for the year ahead with\ntwo years ago in terms of assessing the economic impact?\nCan we really balance a two-year change on the tax side\nwith a one-year change on the spending side, and you are\ntrying to say they are the same thing?\nMR. GREENSPAN: No, no. Let me tell you what the\ncomparisons are. We have ongoing forecasts of the economy\nand what we tend to do is to reflect various different\noptions that are involved in them. The latest forecasts\nthat we have set up are not reflective of obviously 1972\nor 1974, but essentially what has been going on within the\ntax structure as it stands now.\nWhat we have done is superimposed upon them,\nstarting off with expenditure expectations of no actions of\nany sort and running our best estimates that we can, we came\nup, as I indicated several weeks ago, with a real growth\nrate approximating 7 percent to mid-1975 to mid-1976.\nMORE\n16\n-\nWhat I am suggesting to you is this: We have\nreinstituted new estimates based on this program, and it\ndoes not significantly alter those numbers.\nQ Okay. I wondered, however, if we can't have\na figure to compare existing 1975 law to see what these tax\nchanges really are.\nMR. GREENSPAN: I agree with you. I think that\nis correct and those data should be made available shortly.\nQ\nNow, the second question on the same subject\nof these numbers, differently. I assume that everything, Mr.\nSimon, that you have told us about the percentage tax\nincreases by tax bracket eliminates, leaves out of consider-\nation the fact that you are asking that the work bonus,\nthe earned income credit, be eliminated, and you are now\ncalling it an expenditure.\nTherefore, this thing which is for the low income\nis nowhere in any of these figures, percentage change or\notherwise, that you have given us, is that correct?\nSECRETARY SIMON: The earned income credit is not\nin the President's tax proposals, that is correct.\nQ\nOr in any of these comparison numbers?\nSECRETARY SIMON: That is correct.\nQ\nIncluding the tables that show by income\nbracket and so forth?\nSECRETARY SIMON: That is correct.\nQ Mr. Simon, as I see this, the tax reductions\nthat are in effect may begin at the first part of the\ncalendar year, but the spending reductions do not go into\neffect until the third quarter, and so your proposition is\nto cut taxes for the first three quarters for no spending\nand then what happens in November of 1976 is that there is\nan election.\nNow, was that taken into consideration in\ndeciding on the timing?\nSECRETARY SIMON: It most certainly was not taken\ninto consideration. The consideration was that we wanted\na determination by the Congress that fiscal 1977 budget\nexpenditures would be held to $395 billion, which from\ntoday's estimates mean that the proposed cut in the future\nwould be equivalent to the amount of the tax cut that the\nPresident is proposing today, and it had nothing to do\nwith the election in November 1976.\nMORE\n17\nQ\nDid you seriously discuss any of these\nproposals with Congressional leaders before making them\npublic?\nSECRETARY SIMON: The President is discussing\nthese right at this very moment with Congressional leaders.\nQ\nBut since your Administration, as I under-\nstand it, has a minority in both Houses of Congress and\nsince this will require legislative action, it seems to\nme that you could be accused here of presenting a political\nploy to the Democratic Congress.\nSECRETARY SIMON: I would assume that you can always\nbe accused of presenting a political ploy to Congress, but\nthat does not concern us. We believe that this proposal\nmakes good long run sense to the American people, that they\nbegin to reverse this trend that has been going on in\nGovernment, especially in the last ten years.\nIf they want to attach certain slogans to it,\nsome people, well, so be it. That was not the intent of the\nproposal.\nQ\nThe long-term effect you say is this\nreduction of Federal spending.\nSECRETARY SIMON: The growth in Federal spending.\nQ\nThe short-term effect is to increase the\nFederal deficit and increase the Treasury' borrowing on\nthe market, I believe was the question. Correct me if I\nam wrong.\nWhy is that a good idea now, and why don't they\nhave all the dire consequences that you have been warning\nabout for many months?\nSECRETARY SIMON: The near term effect is slightly\nraising the President's ceiling that he put on at $60\nbillion. That is a fact. The point is that for the longer\nrun considerations they outweigh these shorter run consider-\nations, and I think that if this program were enacted in\nthis fashion, the expectations of the marketplace would be\nthat the Federal Government is finally getting their\nspending under control and we begin to work away at the\nimportant inflationary expectations that are so deeply\ningrained, plus the loss of confidence the American\npeople obviously had based on every policy that is taken\nin the ability of Government to manage their economy and,\nmore importantly, to get their spending and inflation\nunder control.\nMORE\nDERALD FORD LIBRARY\n- 18 -\nI think on the whole the positives far outweigh\nthe negatives of a short-term, as I say, slight increase\nin the deficit.\nQ\nHow much will the deficit go up?\nMR. LYNN: It depends on an awful lot of\nfactors. As you have heard me testify on the Hill, we have\na good deal of uncertainties right now, ranging all the way\nfrom just trying to get a good handle on estimating entitle-\nment. programs, whether we are talking about food stamps or\nsupplemental unemployment benefits and so on.\nQuite apart from that, we have to engage in a\nguessing game as to what Congress will do from here on out by\nway of the kind of salami tactics that we have had up to\nnow, where we propose \"X\" and Congress always feels disposed\nto add \"X plus Y\" to the particular program.\nMy hope would be that Congress, in the spirit of\nthis proposal, will now make a genuine effort to go along\nwith the proposals that are still before the Congress that\nthe President has made. I would think, to give you a rough\nestimate, that we would be able to have a deficit somewhere\nin the middle 60's before we are done.\nWe had to look at the reality that if Congress\ndoes not show that kind of restraint and looking at the\ntotal estimating that is involved, you can have a deficit\nof about $70 billion. But, I have to urge you once again\nthis early in the fiscal year -- and also given all of the\nuncertainties with respect to the estimate -- you can't\ngive a positive single figure at this point and feel con-\nfident that it is so.\nQ\nJust this itself, how much would this add\nto the deficit?\nQ\nWhat year?\nMR. LYNN: What are you talking about? Fiscal\n1976?\nQ\nFiscal\n1976.\nMR. LYNN: The effect of this proposal by way\nof receipts lost over and above, let's say, the magnified\nextension is what? Do we have that? It is what? Five?\nQ\nAll by itself?\nMR. LYNN: All by itself.\nMORE\n- 19 -\nQ It is 11.\nMR. LYNN: It is 11 by itself for what, on a\nfull year basis?\nQ It is 28.\nMR. LYNN: The 28 again, in answer to Miss Shanahan's\nquestion, the 28 is from the 1972-1974 kind of package,\nso what I was giving you was a figure of the net additional\namount if you were to assume things continued the way Miss\nShanahan talked about it.\nQ\nWhat is that total figure from 1975 to 1976?\nThese tax cuts are what?\nMR. LYNN: Say that again.\nQ\nFrom present law --\nMR. LYNN: From present law?\nQ\nFrom present law the total tax cut herein\nproposed is $11 billion, is that right?\nMR. LYNN: About 11, that is right. On an\nannualized basis?\nQ\nNo.\nMR. LYNN: On an annualized basis?\nQ\nShe asked how much the increase is from 1975.\nSECRETARY SIMON: Break it down. First we had\nthe rebates in there, and they are out, so we forgot these.\nRight? Then, we take the individual reductions, which\nwere $12 billion in 1974 and now they are $20.6, so we are\nup $8 billion for the individuals, 1975 over 1976. Then\nthe business cuts.\nIn 1976, the investment tax credit does not\nexpire until January 1977, so the impact is not felt\nuntil fiscal 1977. So, leave out the 2 percent reduction.\nQ\nLeave that out?\nSECRETARY SIMON: Yes, the 2 percent reduction in\ncorporate tax rates, the impact is on there, so that is\nroughly it.\nQ\nLet's get clear. This proposal is that you\nare proposing tax law changes which would reduce taxes in\n1976 by $11 billion compared to tax liabilities under\npresent law?\nMORE\n- 20 -\nMR. LYNN: You are talking about calendar year\n1976?\nQ Yes.\nMR. LYNN: See, that is where our confusion was\ncoming. I was talking fiscal year. You are talking\ncalendar year. As far as receipts, it lost about $11\nbillion.\nIsn't that right, Bill?\nQ\nWhere does that put you?\nQ\nIn comparison with present law.\nMR. LYNN: In comparison with present law?\nQ That is not my question.\nMR. LYNN: That answers one question. Let's take\nanother one. You go ahead.\nQ\nMy question is, how much will be added to the\ndeficit by proposing by this tax proposal, and that is\nassuming that the 1975 tax cut would have expired.\nMR. LYNN: Totally?\nQ Period.\nMR. LYNN: I suppose the way you would estimate\nthat is, first, to take a half of a full year's effect.\nThe full effect of the tax package is roughly $28 billion,\nright? So, you take a half year's effect of that, and I am\nbeing very rough in that.\nMy real expert, Bill Macomber, please feel free to\ncorrect me. Take roughly half of that and that would\nbe the additional receipts lost for the period. But, what\nthe economists also do is take a look at all of the factors\nthat enter into the economy, and what you think that kind\nof tax cut will do by way of signals -- more importantly,\nwhat the restraint provision you are trying to get for\n1977 will do to the business community and to the\nindividuals and, therefore, some part of that receipts loss\nwill build into the deficit.\nQ Sure you figured it out. I am just asking\nfor the figure. I know what the process is, but what is the\nfigure? Is it $11 billion?\nMORE\n- 21 -\nMR. LYNN: It would not be the total $11 billion\nby any means.\nQ\nIt is not the total $14 billion.\nMR. LYNN: All right, the total $14 billion.\nQ\nWhat is it?\nMR. LYNN: It would be something less than that.\nAlan, would you care to comment on that?\nMR. GREENSPAN: One of the problems he has got is\nthe fact that when taxes are received -- and I think that\nunless you can go through a simulation of the specific\ntax receipts differences, that is not a number you can get\nthat simply.\nDo you have that?\nQ\nYou cannot say how much this will add to the\ndeficit?\nMR. GREENSPAN: No.\nMR. LYNN: We have said that. We have said it in\nthe fact sheet.\nWhat we said at the end of the fact sheet was that\ntaking into account the factors that we know of now, and\nthat includes putting in somewhat of a cushion for Congress-\nional reluctance in the future, as they have in the past,\nto adopt the kinds of restraints that we have proposed, that\nthe deficit for fiscal year 1976 would be about $70 billion.\nQ\nDropping the 40 to 44 in following fiscal\nyear?\nMR. LYNN: Yes.\nQ\nCan we have the breakdown again of that\n$11 billion on the 1975 comparison of the tax cut? In\ncalendar 1975, compared to the temporary 1975 law,\nyou said earlier, how do you break that down?\nMR. LYNN: The way I got to that in my head was--\nand again, Dale, the way we calculated it was--that if you\ntake the 1975 law, the way it is being applied now and\nwith withholding rates, as you have it now, the effect\non a full year basis on whether you take fiscal or other-\nwise, but once it is in effect is about $17 billion -- $17\nbillion, $18 billion, somewhere in there.\nSo, therefore, if you look at your $28 billion,\nthat is what your differential is.\nMORE\n- 22 -\nQ\n$17 billion revenue loss?\nMR. LYNN: Yes, That is revenue loss again.\nThat does not necessarily mean your deficit loss.\nQ\nCan we get a breakdown of numbers parallel\nto the 1972-1974 numbers?\nSECRETARY SIMON: We can pass out what the 1975\ntax act was in the old sheet that gives you the revenue\nimpacts on the 1975 tax act. You have the 1976 act here\nproposed with the revenue impacts and a good many of the\nbusiness tax cuts are the same.\nThe investment tax credit, as I say, does not\nexpire until 1977. Your major difference is in your\nindividual tax cut. Of course, that is offset by the\nrebate, which the $8 billion is off already.\nQ\nWhat you are saying now is the $28 billion\nis made up of the $17 billion worth of cuts this year in\ncalendar 1976 and 11. Is that the 28? There was 17.\nMR. LYNN: Try it again.\nQ\nThe 28 is a combination of $17 billion worth\nof tax revenue loss in this calendar year. What you are\nproposing is 11 for calendar 1976, and that is how you\nget your 28.\nMR. LYNN: It is not quite that because you have\nto distinguish between what the total amount of tax deduction\nis locked into, not individual taxpayers or the like, and\nthat gets you to an annualized amount of about $14 billion,\nI think it is. Is it 14? No, 12 plus. It is somewhere\nbetween $12 billion and $13 billion.\nIf you assume the taxpayers continue to get the\nsame take-home pay, in other words you try to get an\nannualized base so that they keep the same withholding\nthat they have now, you have to add another $4 billion plus\nto that, and that is what gives you the $17 to $18 billion.\nIf you were to have taxes just continue now the\nway our American taxpayers are paying them, with their take-\nhome pay as they get it every month, it would cost you on\nan annual rate about $17 billion, somewhere between $17\nand $18 billion. What this does is add about another $11\non top of that.\nQ\nYes, but if we get to the end of 1976 --\nMR. LYNN: Are you talking calendar?\nMORE\n- 23 -\nQ\nCalendar.\nMR. LYNN: Okay, I just wanted to know.\nQ\nIf we ever get to the end of calendar year\n1976 --\nMR. LYNN: I hope we do.\nQ\nThen what you will be saying is that $11\nbillion will be lopped off in 1976, isn't that right?\nMR. LYNN: In one way, I see what you are saying.\nIf you were to assume that the temporary tax cut were\nthere forever, if that is the way you looked at it, and\nwe looked upon it as a new ball game that we have to decide\nnow what is the best tax policy for the United States\neffective January 1 -- but if you looked at it your way,\nyou are absolutely right.\nIt was decided in the old law to add at the rate\nof $17 billion a year and under this new change you are\nadding another $11 billion a year. We prefer not to look\nat it that way. We prefer to look at it overall as to what\ndoes this mean by way of a tax program that makes sense for\nthis country for a longer term direction.\nOne thing I will urge you to look at is that in\nthe President's statement--and it should have been\nreflected in the fact sheet, and I am sorry it is not there,\nit should be there -- the President says that this ceiling\nis the first step moving toward a balanced budget within\nthree years.\nNow we think the net effect of all of these\nactions that the President is proposing will be to, one,\nget a much healthier economy; two, return some freedom\nof our taxpayers to spend the money they are earning that\nthey have rapidly been losing over many years in the past.\nMR. NESSEN: There is a Cabinet meeting that these\nthree gentlemen need to go to. It started a couple minutes\nago, so we probably should knock this off.\nQ\nDoes this program mean you will initiate no\nnew programs next year?\nMR. LYNN: Yes, no new spending.\nTHE PRESS: Thank you.\nEND\n(AT 6:24 P.M. EDT)\nEMBARGOED FOR RELEASE\nOCTOBER 6, 1975\nUNTIL 8:00 P.M. EDT\nOffice of the White House Press Secretary\nTHE WHITE HOUSE\nFACT SHEET\nTHE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT\nPresident Ford is proposing that permanent large tax cuts be made\npossible for American taxpayers by Congress joining with him in\nlimiting the growth of federal expenditures. The tax reductions\nproposed by the President total about $28 billion compared to 1974\nlaw. This proposal is linked to the adoption by the Congress now\nof a spending ceiling of $395 billion for FY 1977. This represents\na reduction of about $28 billion from projected levels for that\nyear unless action to limit federal spending is taken.\nThe proposed tax cuts are divided approximately 75 percent for\nindividuals and 25 percent for business. A family of four earning\n$14,000 a year would receive a reduction in their tax liability\nof $412 or 27 percent.\nI. SUMMARY OF THE TAX CUT PROPOSAL\nA. The individual tax reductions will be accomplished by:\n$8 billion in cuts to replace the temporary 1975\ntax reductions.\n$4 billion in additional cuts required to keep\npersonal withholding rates constant. (The 1975\ncut was reflected in withholding over an eight-\nmonth period and, therefore, a $4 billion extra\ncut is provided to keep withholding constant.)\n$8.7 billion in further tax relief distributed\nthroughout all income ranges.\nB. The business tax reductions will continue the tax\nrelief for small business provided by the 1975 Act, will\nmake permanent the higher investment credit rate of 10 per-\ncent as an incentive for investment in equipment needed to\nincrease productivity and to provide new jobs, will reduce\nthe marginal rate on business income as a first step toward\neliminating the existing tax bias against capital formation,\nand will provide special relief to utilities needed to reduce\ndependence on foreign energy sources.\n(OVER)\n2\nC. The recommended changes in the individual and business\nincome tax structure, and their costs, as compared to 1974\nlaw, are as follows:\nIndividual Tax Cuts\nIncrease personal exemption from $750\n$10.1 billion\nto $1,000.\nReplace $1,300 low income allowance\n$ 4.0 billion\nand $2,000 maximum standard deduction\nwith flat amount standard deduction\nof $2,500 for married couples ($1,800\nfor a single person)\nReduce tax rates\n$ 6.6 billion\nTOTAL INDIVIDUAL TAX CUTS\n$20.7 billion\nBusiness Tax Cuts\nExtension of 1975 corporate rate\n$ 1.7 billion\nand surtax exemption changes\nPermanent extension of investment\n$ 2.5 billion\ncredit increase (from 7-10; 4-10\nfor utilities)\n2% corporate rate reduction (48-46%)\n$ 2.2 billion\nUtilities tax relief previously\n$ 0.6 billion\nproposed (see Annex C)\nTOTAL BUSINESS TAX CUTS\n$ 7.0 billion\nTOTAL TAX CUTS\n$27.7 billion\nThe effects on individual taxpayers of the President's tax\nproposals are shown in the following tables:\n3\nTax Liabilities for Family with 2 Dependents,\nFiling Joint with Itemized Deductions of\n16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized\ndeduction, family uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n:\n1975\n:\nProposed\n1972-74\n: 1975\nincome\nlaw\n:\nlaw\n: 1976 law\nlaw\n: law\n$ 5,000\n98\n0\n0\n98\n0\n7,000\n402\n186\n60\n342\n126\n10,000\n886\n709\n485\n401\n224\n15,000\n1,732\n1,612\n1,325\n407\n287\n20,000\n2,710\n2,590\n2,280\n430\n310\n25,000\n3,820\n3,700\n3,370\n450\n330\n30,000\n5,084\n4,964\n4,648\n436\n316\n40,000\n8,114\n7,994\n7,664\n450\n330\n50,000\n11,690\n11,570\n11,180\n510\n390\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\nTax Liabilities for Single Person with Itemized\nDeductions of 16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized deduction,\nindividual uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n:\n1975\n: Proposed\n1972-74\n:\n1975\nincome\nlaw\n:\nlaw\n: 1976 law\nlaw\n:\nlaw\n$ 5,000\n$\n490\n$\n404\n$\n307\n$ 183\n$ 97\n7,000\n889\n796\n641\n248\n155\n10,000\n1,506\n1,476\n1,227\n279\n249\n15,000\n2,589\n2,559\n2,307\n282\n252\n20,000\n3,847\n3.817\n3,553\n294\n264\n25,000\n5,325\n5,295\n5,015\n310\n280\n30,000\n6,970\n6,940\n6,655\n315\n285\n40,000\n10,715\n10,685\n10,375\n340\n310\n50,000\n15,078\n15,048\n14,725\n353\n323\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\n#\n#\n4\nE\nII. FULLER DESCRIPTION OF PROPOSED TAX CUTS\nA. Individual Tax Cuts\nThe proposed permanent restructuring would replace the\ntemporary mandard deduction and the $30 per taxpayer\nexemption credit provided by the 1975 Act. The changes\nassure that withholding will not be increased and\nthat, in fact, there will be further tax reductions for\nthe great majority of taxpayers. As compared to 1974 law,\nthe President's proposal would:\nIncrease the personal exemption from $750 to $1,000.\nReplace the present minimum standard deduction (low\nincome allowance) of $1,300 and maximum standard\ndeduction of $2,000 by a single standard deduction in\na flat amount of $1,800 for a single taxpayer and\nTBS\n$2,500 for a married couple ($1,250 for married person\nfiling separately). This compares with the average\nOIE\nstandard deduction claimed in 1974 of $1,625 by married\ncouples and $1,400 by single persons. (The 1975 Act\nDEE made temporary changes in the standard deduction, which\nare described in Annex D.)\nDIE\nProvide rate reductions as shown in the tax rate\nDEE\nschedules attached at Annexes A & B.\nB. Business Tax Cuts\n000.11\n000.02\nThe President also proposes to:\nto\nto\n-- Reduce the maximum corporate tax rate from 48 percent\nto 46 percent.\nContinue the 1975 Act increase in the surtax exemption\n(which determines the amount taxable at rates below\n48 percent) from $25,000 to $50,000 of taxable income.\n-- Continue the 1975 Act reduction in the rate on the\nfirst $25,000 of taxable income from 22 percent to 20\npercent (the second $25,000 of taxable income will be\nWBI\n:\ntaxable at a 22 percent rate, with the balance of\nincome taxed at a 46 percent rate).\n--- Make permanent the 1975 Act increase in the investment\n&\ncredit from 7 percent (4 percent in the case of public\nutilities) to 10 percent.\n221\n--\nEnact a six-point program to provide tax relief to\ners\nelectric utilities and to reduce dependency on foreign\nenergy sources (see Annex C for full description).\nsas\nSBS\nTOE.S\n222.5\n982.5\n000.21\nmore\npas\npes\n822,8\nT18.E\nTH8sE\n000,0S\n08S\nOIE\n210.2\n258.8\n000,29\n285\nCIE\n220.8\none.a\noTe.a\n000.0E\nOIE\nOHE\nEYE.OI\n288.01\nCIT.O1\n000.00\nESE\n828\nCST,HI\n880.21\n850.21\n000.02\nto to\nsisvisnA 10\n5\nIII. BACKGROUND ON FEDERAL SPENDING\nA. Unless action is taken to restrain federal outlays in FY\n1977, spending can be expected to increase by around $53\nbillion in a single year. Budget outlays are approaching\n$370 billion in FY 1976. Without specific legislative action\nto limit spending, outlays in FY 1977 will reach $423 billion\nor more. The main elements of an increase of $53 billion\nare as follows:\n(Billions)\nInterest on the public debt will rise as\nthe size of the debt grows. If current\ninterest rates are maintained, the in-\ncrease will approach\n$9\nCivilian and military salaries increase\nautomatically unless the President and\nCongress agree on an alternative plan.\nWould add more than\n+6\nRetirement benefits for retired federal\nmilitary and civilian personnel also rise\nautomatically with the cost-of-living\n+3\nSocial security and railroad retirement\npayments increase automatically based\nupon the cost-of-living index\n+12\nMedicare and Medicaid payments rise as\ncosts increase and the number of eligible\nrecipients go up\n+5\nPublic assistance, food stamps,\nhousing subsidies and related\nprograms are tied to the formulae set\nin law or in existing contracts\n+2\nMajor construction of wastewater treat-\nment plants now underway will add nearly\n+2\nEssential procurement and research and\ndevelopment of military hardware and\nmaintenance of necessary military\nfacilities will add over\n+3\nIncreases for energy research and develop-\nment and transportation programs and\ninclusion of Export-Import Bank in budget.\n+4\nOther likely net changes including effect\nof Congressional inaction on budget reduc-\ntion proposals heretofore proposed by the\nPresident and the effect of probable\nCongressional initiatives\n+7\nTOTAL\n53\n6\nB. Decisions have not yet been made on which programs will\nbe restrained or curtailed.\n-- Specific decisions will be made in the budget\nreview process leading up to the President's\nJanuary Budget Message to Congress.\n- All departments and agencies will be called upon\nto moderate program growth, expenditures, and\nFederal personnel levels.\nC. The President has called upon Congress to join with\nhim in making the tax reductions possible by placing a\nlimit of $395 billion on FY 1977 expenditures now.\n--- A $395 billion ceiling is $25 billion above the\ncurrently estimated spending level this fiscal\nyear and $28 billion below the level now pro-\njected for FY 1977.\nD. Based upon current estimates that FY 1976 spending\nmay approach $370 billion, the FY 1976 budget deficit\nwould be about $70 billion. With the President's\nproposals, the FY 1977 deficit is estimated in the\nrange of $40-44 billion.\n# # # # #\nEMBARGOED FOR RELEASE\nOCTOBER 6, 1975\nUNTIL 8:00 P.M. EDT\nOffice of the White House Press Secretary\nTHE WHITE HOUSE\nFACT SHEET\nTHE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT\nPresident Ford is proposing that permanent large tax cuts be made\npossible for American taxpayers by Congress joining with him in\nlimiting the growth of federal expenditures. The tax reductions\nproposed by the President total about $28 billion compared to 1974\nlaw. This proposal is linked to the adoption by the Congress now\nof a spending ceiling of $395 billion for FY 1977. This represents\na reduction of about $28 billion from projected levels for that\nyear unless action to limit federal spending is taken.\nThe proposed tax cuts are divided approximately 75 percent for\nindividuals and 25 percent for business. A family of four earning\n$14,000 a year would receive a reduction in their tax liability\nof $412 or 27 percent.\nI. SUMMARY OF THE TAX CUT PROPOSAL\nA. The individual tax reductions will be accomplished by:\n$8 billion in cuts to replace the temporary 1975\ntax reductions.\n$4 billion in additional cuts required to keep\npersonal withholding rates constant. (The 1975\ncut was reflected in withholding over an eight-\nmonth period and, therefore, a $4 billion extra\ncut is provided to keep withholding constant.)\n$8.7 billion in further tax relief distributed\nthroughout all income ranges.\nB. The business tax reductions will continue the tax\nrelief for small business provided by the 1975 Act, will\nmake permanent the higher investment credit rate of 10 per-\ncent as an incentive for investment in equipment needed to\nincrease productivity and to provide new jobs, will reduce\nthe marginal rate on business income as a first step toward\neliminating the existing tax bias against capital formation,\nand will provide special relief to utilities needed to reduce\ndependence on foreign energy sources.\n2\nC. The recommended changes in the individual and business\nincome tax structure, and their costs, as compared to 1974\nlaw, are as follows:\nIndividual Tax Cuts\nIncrease personal exemption from $750\n$10.1 billion\nto $1,000.\nReplace $1,300 low income allowance\n$ 4.0 billion\nand $2,000 maximum standard deduction\nwith flat amount standard deduction\nof $2,500 for married couples ($1,800\nfor a single person)\nReduce tax rates\n$ 6.6 billion\nTOTAL INDIVIDUAL TAX CUTS\n$20.7 billion\nBusiness Tax Cuts\nExtension of 1975 corporate rate\n$ 1.7 billion\nand surtax exemption changes\nPermanent extension of investment\n$ 2.5 billion\ncredit increase (from 7-10; 4-10\nfor utilities)\n2% corporate rate reduction (48-46%)\n$ 2.2 billion\nUtilities tax relief previously\n$ 0.6 billion\nproposed (see Annex C)\nTOTAL BUSINESS TAX CUTS\n$ 7.0 billion\nTOTAL TAX CUTS\n$27.7 billion\nThe effects on individual taxpayers of the President's tax\nproposals are shown in the following tables:\n3\nTax Liabilities for Family with 2 Dependents,\nFiling Joint with Itemized Deductions of\n16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized\ndeduction, family uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n: 1975\n:\nProposed\n1972-74\n: 1975\nincome\nlaw\n:\nlaw\n:\n1976 law\nlaw\n: law\n$ 5,000\n98\n0\n0\n98\n0\n7,000\n402\n186\n60\n342\n126\n10,000\n886\n709\n485\n401\n224\n15,000\n1,732\n1,612\n1,325\n407\n287\n20,000\n2,710\n2,590\n2,280\n430\n310\n25,000\n3,820\n3,700\n3,370\n450\n330\n30,000\n5,084\n4,964\n4,648\n436\n316\n40,000\n8,114\n7,994\n7,664\n450\n330\n50,000\n11,690\n11,570\n11,180\n510\n390\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\nTax Liabilities for Single Person with Itemized\nDeductions of 16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized deduction,\nindividual uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n:\n1975\n: Proposed\n1972-74\n:\n1975\nincome\nlaw\n:\nlaw\n: 1976 law\nlaw\n:\nlaw\n$ 5,000\n$\n490\n$\n404\n$\n307\n$ 183\n$ 97\n7,000\n889\n796\n641\n248\n155\n10,000\n1,506\n1,476\n1,227\n279\n249\n15,000\n2,589\n2,559\n2,307\n282\n252\n20,000\n3,847\n3.817\n3,553\n294\n264\n25,000\n5,325\n5,295\n5,015\n310\n280\n30,000\n6,970\n6,940\n6,655\n315\n285\n40,000\n10,715\n10,685\n10,375\n340\n310\n50,000\n15,078\n15,048\n14,725\n353\n323\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\n# #\n4\nII. FULLER DESCRIPTION OF PROPOSED TAX CUTS\nA. Individual Tax Cuts\nThe proposed permanent restructuring would replace the\ntemporary increased standard deduction and the $30 per taxpayer\nexemption credit provided by the 1975 Act. The changes\nassure that withholding will not be increased and\nthat, in fact, there will be further tax reductions for\nthe great majority of taxpayers. As compared to 1974 law,\nthe President's proposal would:\n-- Increase the personal exemption from $750 to $1,000.\n-- Replace the present minimum standard deduction (low\nincome allowance) of $1,300 and maximum standard\ndeduction of $2,000 by a single standard deduction in\na flat amount of $1,800 for a single taxpayer and\n$2,500 for a married couple ($1,250 for married person\nfiling separately). This compares with the average\nstandard deduction claimed in 1974 of $1,625 by married\ncouples and $1,400 by single persons. (The 1975 Act\nmade temporary changes in the standard deduction, which\nare described in Annex D.)\n-- Provide rate reductions as shown in the tax rate\nschedules attached at Annexes A & B.\nB. Business Tax Cuts\nThe President also proposes to:\n-- Reduce the maximum corporate tax rate from 48 percent\nto 46 percent.\n-- Continue the 1975 Act increase in the surtax exemption\n(which determines the amount taxable at rates below\n48 percent) from $25,000 to $50,000 of taxable income.\n-- Continue the 1975 Act reduction in the rate on the\nfirst $25,000 of taxable income from 22 percent to 20\npercent (the second $25,000 of taxable income will be\ntaxable at a 22 percent rate, with the balance of\nincome taxed at a 46 percent rate).\n-- Make permanent the 1975 Act increase in the investment\ncredit from 7 percent (4 percent in the case of public\nutilities) to 10 percent.\n-- Enact a six-point program to provide tax relief to electric\nutilities and to reduce dependency on foreign energy\nsources (see Annex C for full description).\nmore\n5\nIII. BACKGROUND ON FEDERAL SPENDING\nA. Unless action is taken to restrain federal outlays in FY\n1977, spending can be expected to increase by around $53\nbillion in a single year. Budget outlays are approaching\n$370 billion in FY 1976. Without specific legislative action\nto limit spending, outlays in FY 1977 will reach $423 billion\nor more. The main elements of an increase of $53 billion\nare as follows:\n(Billions)\nInterest on the public debt will rise as\nthe size of the debt grows. If current\ninterest rates are maintained, the in-\ncrease will approach\n9\nCivilian and military salaries increase\nautomatically unless the President and\nCongress agree on an alternative plan.\nWould add more than\n+6\nRetirement benefits for retired federal\nmilitary and civilian personnel also rise\nautomatically with the cost-of-living\n+3\nSocial security and railroad retirement\npayments increase automatically based\nupon the cost-of-living index\n+12\nMedicare and Medicaid payments rise as\ncosts increase and the number of eligible\nrecipients go up\n+5\nPublic assistance, food stamps,\nhousing subsidies and related\nprograms are tied to the formulae set\nin law or in existing contracts\n+2\nMajor construction of wastewater treat-\nment plants now underway will add nearly\n+2\nEssential procurement and research and\ndevelopment of military hardware and\nmaintenance of necessary military\nfacilities will add over\n+3\nIncreases for energy research and develop-\nment and transportation programs and\ninclusion of Export-Import Bank in budget.\n+4\nOther likely net changes including effect\nof Congressional inaction on budget reduc-\ntion proposals heretofore proposed by the\nPresident and the effect of probable\nCongressional initiatives\n+7\nTOTAL\n53\n6\nB. Decisions have not yet been made on which programs will\nbe restrained or curtailed.\n-- Specific decisions will be made in the budget\nreview process leading up to the President's\nJanuary Budget Message to Congress.\n- All departments and agencies will be called upon\nto moderate program growth, expenditures, and\nFederal personnel levels.\nC. The President has called upon Congress to join with\nhim in making the tax reductions possible by placing a\nlimit of $395 billion on FY 1977 expenditures now.\n--- A $395 billion ceiling is $25 billion above the\ncurrently estimated spending level this fiscal\nyear and $28 billion below the level now pro-\njected for FY 1977.\nD. Based upon current estimates that FY 1976 spending\nmay approach $370 billion, the FY 1976 budget deficit\nwould be about $70 billion. With the President's\nproposals, the FY 1977 deficit is estimated in the\nrange of $40-44 billion.\n# # # # #\nANNEX A (*)\nTax Rate Schedule for President's\nOctober 6, 1975 Tax Reduction Proposals\n(Married Taxpayers Filing Jointly)\nTaxable income\n: Present rates :Proposed rates\nbracket\n:\n(percent)\n:\n(percent)\n$\n0\n$1,000\n14\n12\n1,000\n2,000\n15\n14\n2,000\n3,000\n16\n15\n3,000\n4,000\n17\n15\n4,000\n6,000\n19\n16\n6,000\n8,000\n19\n17\n8,000\n10,000\n22\n21\n10,000\n12,000\n22\n22\n12,000\n16,000\n25\n25\n16,000\n20,000\n28\n29\n20,000\n24,000\n32\n34\n24,000\n28,000\n36\n28,000\n32,000\n39\nM\na\n32,000\n36,000\n42\n36,000\n40,000\n45\n40,000\n44,000\n48\n44,000\n52,000\n50\n52,000\n64,000\n53\n64,000\n76,000\n55\npresent\n76,000\n88,000\n58\n88,000\n100,000\n60\n100,000\n120,000\n62\n120,000\n140,000\n64\nas\n140,000\n160,000\n66\n160,000\n180,000\n68\n180,000\n200,000\n69\n200,000\n--\n70\nSame\nOffice of the Secretary of the Treasury\nOctober 6, 1975\nOffice of Tax Analysis\nNOTE: While some rates are increased in the higher brackets,\ntaxpayers with income taxed in those brackets will\nbenefit from rate reductions in the lower brackets and\nthe increase in the personal exemption so that on balance\nthe tax cut proposals will reduce taxes even for those\naffected by the increased rates.\n(*) ANNEXES PREPARED BY TREASURY DEPARTMENT\nOFFICE OF TAX POLICY\nANNEX B\nTax Rate Schedule for President's\nOctober 6, 1975 Tax Reduction Proposals\n(Single Taxpayers)\nTaxable income\n: Present rates Proposed rates\nbracket\n:\n(percent)\n:\n(percent)\n$\n0\n$ 500\n14\n12\n500\n1,000\n15\n13\n1,000\n1,500\n16\n15\n1,500\n2,000\n17\n15\n2,000\n3,000\n19\n16\n3,000\n4,000\n19\n17\n4,000\n5,000\n21\n18\n5,000\n6,000\n21\n19\n6,000\n8,000\n24\n21\n8,000\n10,000\n25\n24\n10,000\n12,000\n27\n27\n12,000\n14,000\n29\n29\n14,000\n16,000\n31\n31\n16,000\n18,000\n34\n18,000\n20,000\n36\n20,000\n22,000\n38\n22,000\n26,000\n40\n26,000\n32,000\n45\n32,000\n38,000\n50\n38,000\n44,000\n55\n44,000\n50,000\n60\n50,000\n60,000\n62\n60,000\n70,000\n64\n70,000\n80,000\n66\n80,000\n90,000\n68\nSame as present law\n90,000\n100,000\n69\n100,000\n--\n70\nOffice of the Secretary of the Treasury\nOctober 6, 1975\nOffice of Tax Analysis\nNOTE: While some rates are increased in the higher brackets,\ntaxpayers with income taxed in those brackets will\nbenefit from rate reductions in the lower brackets\nand the increase in the personal exemption so that on\nbalance the tax cut proposals will reduce taxes even\nfor those affected by the increased rates.\nANNEX C\nSIX-POINT UTILITIES PACKAGE\nIncrease the investment tax credit permanently to 12\npercent on all electric utility property except generat-\ning facilities fueled by petroleum products. No change\nof the percent-of-tax limitation is involved. The\nincrease in the credit is allowable only if construction\nwork in progress is included in the utility's rate base\nand the benefit of the increase is \"normalized\" for\nratemaking purposes. \"Normalized\" in this sense\nmeans reflecting the tax benefit for ratemaking purposes\npro rata over the life of the asset which generates the\nbenefit instead of recognizing the entire tax benefit\nin the year the utility's taxes are actually reduced.\nIn the absence of normalization, the entire tax benefit\nwould flow through immediately in the form of reduced\nutility rates for consumers, and no real economic benefit\nwould result for the utility.\n-- Give electric utilities full, immediate investment tax\ncredit on progress payments for construction of\nproperty that takes two years or more to build, except\ngenerating facilities fueled by petroleum products,\nwithout regard to the five-year phase-in required by\nthe Tax Reduction Act of 1975. This new provision\napplies only if the regulatory agency includes con-\nstruction work in progress in the utility's rate base\nfor ratemaking purposes.\n-- Extend to January 1, 1981, the period during which\npollution control facilities installed in a pre-1969\nplant or facility may qualify for rapid five-year\nstraight-line amortization in lieu of normal depre-\nciation and the investment credit.\n-- Permit rapid five-year amortization of the costs of\neither converting a generating facility fueled by petroleum\nproducts into a facility not fueled by petroleum products or\nreplacing a petroleum-fueled facility with one not fueled\nby petroleum. This amortization is in lieu of normal\n- 2 -\ndepreciation and the investment credit, and is available\nonly if (i) its benefits are \"normalized\" for ratemaking\npurposes, and (ii) construction work in progress is included\nin the utility's rate base for ratemaking purposes.\n-- Permit a utility to elect to begin depreciation, during the\nconstruction period, of accumulated construction progress\nexpenditures, generally the same expenditures as those which\nqualify for the investment credit construction progress\npayments under the Tax Reduction Act of 1975. Any deprecia-\ntion taken during the construction period will reduce the\ndepreciation deductions available after the property is completed.\nThis early depreciation will be available only if the ratemaking\ncommission includes construction work in progress in\nthe utility's rate base and \"normalizes\" the tax benefits\nfor ratemaking purposes. Construction of generating\nfacilities which will be fueled by petroleum products will\nnot qualify for such depreciation.\n-- Permit a shareholder of a regulated public electric utility\nto postpone tax on dividends paid by the utility on its common\nstock by electing to take additional common stock of the\nutility in lieu of cash dividends. The receipt of the stock\ndividend will not be taxed. The amount of the dividend\nwill be taxed as ordinary income when the shareholder sells\nthe dividend stock and the amount of capital gain realized\non the sale will be decreased (or the amount of capital loss\nincreased) accordingly. Dividend stock is deemed sold before\nother stock.\nFY 1976 COST = $600 million\nAnnex D\nMAJOR 1975 INDIVIDUAL TAX REDUCTIONS\nThe Tax Reduction Act of 1975 contains three temporary\ngeneral individual tax cut provisions affecting most taxpayers. The\nfirst was the temporary one-shot rebate of a portion of 1974 tax liabili-\nties, which was implemented through special rebate checks or larger\nrefund checks last spring (cost: $8. 1 billion). Two other temporary\nstructural changes enacted in 1975 may be summarized as follows:\nStandard deduction liberalization\n-- minimum standard deduction (low income allowance)\nincreased from $1,300 per return ($650 for married\npersons filing separately) to $1, 900 for a joint return\nor surviving spouse, $1,600 for single persons, and\n$950 for married persons filing separately,\n-- maximum standard deduction increased from 15 percent\nof AGI (with a maximum of $2,000 or $1,000 for a\nmarried person filing separately) to 16 percent of AGI\n(with a maximum of $2,600 for a joint return or surviving\nspouse, $2,300 for a single person, and $1, 300 for\nmarried persons filing separately,\n-- effective for one year (generally 1975 calendar year)\nCOST: $2.5 billion\nPersonal exemption tax credit\n-- new $30 per exemption tax credit (except blind and aged\nexemptions) in addition to present law personal exemptions\n-- effective for one year (generally 1975 calendar year)\n1\nCOST: $5.3 billion\nThe approximate $8 billion of tax reductions effected by the\nstandard deduction liberalization and the personal exemption tax cut\nwere reflected in withholding tax reduction over a eight-month period.\nThus, the amount of tax cuts necessary to annualize the 1975 Act with-\nholding tax reductions over a 12-month period would be approximately\n$12 billion.\nANNEX E\nIncome Distribution of President's Tax Reduction Proposal\nat 1975 Levels of Income\n(billions of dollars)\nAdjusted gross\n:\nTax liability\n:\nProposed\n:\nTax\n:\nPercentage\n:\nPercentage\nincome class\n:\nbased on\n:\n1976 tax\n:\nreduction\n: distribution of\n:\nreduction in\n:\n1972-74 law\n:\nliability\n:\n: tax reduction : tax liability 1/\n$\n0 - $5,000\n2.0\n0.8\n1.2\n5.8\n61.3\n5,000 - 10,000\n14.1\n9.1\n5.0\n24.2\n35.3\n10,000 - 15,000\n23.1\n17.6\n5.5\n26.6\n23.8\n15,000 - 20,000\n23.7\n19.5\n4.2\n20.3\n17.7\n20,000 - 30,000\n28.0\n24.7\n3.3\n15.9\n11.7\n30,000 - 50,000\n16.9\n15.9\n1.0\n4.8\n5.8\n50,000 - 100,000\n12.1\n11.7\n0.4\n1.8\n3.2\n100,000 +\n9.4\n9.3\n0.1\n0.5\n0.8\nTOTAL\n129.4\n108.7\n20.7\n100.0\n15.9\nOffice of the Secretary of the Treasury\nOctober 6, 1975\nOffice of Tax Analysis\n1/ Based on unrounded liability figures.\nNOTE: Detail may not add to totals due to rounding.\nANNEX F\nMaximum Levels of Tax-free Earned Income for 1976\nUnder the President's Tax Reduction Proposal\n(rounded to nearest $10)\n:\nMaximum tax-free earned income 1/\n:\nPoverty income levels 2/\nFiling status\n:\n1975\n:\n1976\n:\n1975\n:\n1976\nSingle\nno dependents\n2,560\n2,800\n2,790\n2,970\nMarried, joint return\nno dependents\n3,830\n4,500\n3,610\n3,850\n: dependent\n4,790\n5,500\n4,300\n4,570\n2 dependents\n5,760\n6,500\n5,500\n5,850\n3 dependents\n6,720\n7,500\n6,490\n6,900\n4 dependents\n7,670\n8,500\n7,300\n7,770\nSingle, over 55,\nno dependents\n3,310\n3,800\n2,580\n2,750\nMarried, joint return,\nboth over 65\nno dependents\n5,330\n6,500\n3,260\n3,460\nOffice of the Secretary of the Treasury\nOctober 6, 1975\nOffice of Tax Analysis\n½ For taxpayers not eligible for the earned income credit.\n2/ Unforlying Consumer Price Index: for 1975, 161.2; for 1976, 171.5.\nFOR IMMEDIATE RELEASE\nOCTOBER 6, 1975\nOFFICE OF THE WHITE HOUSE PRESS SECRETARY\nTHE WHITE HOUSE\nREMARKS OF THE PRESIDENT\nON HIS RECOMMENDATIONS\nFOR REDUCTIONS IN TAXES AND SPENDING\nTHE OVAL OFFICE\n8:00 P.M. EDT\nGood evening. I have asked for this opportunity\nto talk with you tonight because it is important that all of\nus begin facing up to a fundamental decision about our\nNation's future.\nFor several years America has been approaching\na crossroads in our history. Today we are there.\nTo put it simply, we must decide whether we shall\ncontinue in the direction of recent years the path toward bigger\nGovernment, higher taxes and higher inflation or whether we\nshall now take a new direction bringing to a halt the momen-\ntous growth of Government, restoring our prosperity and\nallowing each of you a greater voice in your own future.\nTonight I will set forth two proposals that,\ntaken together, as they must be, represent the answer I believe\nwe must choose.\nFirst, I propose that we make a substantial and\npermanent reduction in our Federal taxes, and, second, I\npropose that we make a substantial reduction in the growth of\nFederal spending.\nLet me emphasize at the outset that these proposals\nmust be tied together in one package. It would be dangerous\nand irresponsible to adopt one without the other. I will\nnot accept that as an answer for our future.\nI want these proposals acted upon together by the\nCongress. Together they represent one central and fundamental\ndecision that America belongs to you, the people, and not to\nthe Government.\nMORE\nPage 2\nEach of you knows from experience about your\neconomic problems of recent months, you know what it means to\npay more and more of your income just to feed and clothe\nyour family, to get to work, and to maintain a decent\nhome. You know the fear that strikes the human heart when\na friend or a member of your family is laid off work and you\nknow the anxiety that comes when these forces seem beyond\nyour control.\nNone of us wants to repeat the experiences of the\npast year. We want steady prices, we want steady jobs and,\nabove all, we want a chance to get ahead again, to know that our\ndestiny lies in our own hands and not in Washington or some\nother far away place.\nFortunately, there are encouraging signs that we\nhave weathered the worst of this economic storm. The recovery\nthat began this spring is now gathering momentum. If we act\nwisely, it will continue on an upward path with more jobs\nand more stable prices.\nYet we should not be deceived. All of us must\nrecognize that just beneath the surface there are still\ndeep-seated problems in our economy problems that have\nbeen building up over the years and will not quickly or\neasily disappear.\nWe must attack the underlying causes of our economic\nproblems. We must get at the roots of our difficulties.\nWe must find answers that serve us not only this year but\nfor the years to come.\nThe President and the Congress working together\nhave the power to help. I know that because in Washington\nmuch of America's vitality and prosperity have been drained\naway. It is here that one big spending program after another\nhas been piled on the Federal pyramid taking a larger share of\nyour personal income and creating record budget deficits and\ninflation. Here a massive, often too zealous bureaucracy has\nbeen erected that has become too involved in trying to run\ntoo much of your daily life.\nOver the years these excesses have played a major\nrole in driving up prices, driving up interest rates and\nholding down jobs. We do not have to look far for our\nunderlying problems.\nMuch of our inflation should bear a label \"Made\nin Washington, D.C.\"\nAs we emerge from this recession, we face the basic\nchoice: Shall we continue these patterns in Washington or\nshall we set off in a new direction? We cannot do both.\nWe cannot go down both roads at the same time. We must choose.\nMORE\nPage 3\nTonight, I propose permanent tax reductions totaling\n$28 billion-- the biggest single tax cut in our history.\nEarlier this year the Congress passed, and I signed, a temporary\ntax cut covering calendar year 1975. That temporary law will\nexpire at the end of this year and, unless we act now, your\ntaxes will go up again in January. I am proposing that we\nsweep away that temporary law and replace it, effective\nJanuary 1, with a permanent Federal income tax cut that will\nbe both larger and more equitable.\nThree quarters of this permanent reduction will be\nfor individual taxpayers and the chief benefits will be\nconcentrated where they belong, among working people. The\nindustrious working men and women of this country are the\nbackbone of America. We cannot continuously ask them to\nbear an unfair tax burden. I propose that we lighten the tax\nload for them and for all other Americans in three ways:\nby raising everyone's personal tax exemption from $750 to $1000;\nby making the standard deduction for single taxpayers a flat\n$1800 and for every married couple $2500, and by lowering our\nbasic personal income tax rates.\nTogether these measures will not only decrease\neveryone's taxes but they will aslo help to make up for the\nravages of inflation. They will simplify the tax returns for\nmillions of Americans. The total package represents a substantial\nreduction below the rates that will otherwise take effect\nthis January. Under my proposal, a typical family of four\nearning a total of $14,000 a year would get a permanent tax\ncut of $412 a year, a 27 percent reduction.\nThe other quarter of the tax reduction will be\ndirected at business in a way that creates more jobs. If\ncompanies and plants are to regain their footing and to\nhire more employees in the future, they must have greater\nincentives for investment. In order to create jobs, and good jobs,\nthis country must build new plants and new equipment and\nwe must have a growing economy. The tax cuts that I propose,\nincluding a permanent increase in the investment tax credit and\na two percent reduction in the corporate tax rate, are\nspecifically designed to increase employment. We must recog-\nnize that cutting taxes is only half the answer.\nIf we cut only taxes but do not cut the growth\nof Government spending, budget deficits will continue to\nclimb, the Federal Government will continue to borrow too much\nmoney from the private sector. We will have more inflation,\nand ultimately we will have more unemployment.\nSubstantial cuts in your taxes must be tied to\nsubstantial cuts in the growth of Government spending.\nAnyone who has followed the upward leap in Federal spending\ncan only shake his head in astonishment.\nMORE\nPage 4\nBack in 1962, the Federal budget for the first time\nin our history ran over $100 billion. In only eight years\nthe budget doubled in size. In the coming fiscal year unless\nwe act it will double again to over $400 billion.\nOne of the reasons for this horrendous spending\ngrowth is that much of the increase in each year's budget\nis required by programs already on the statute books. Many\nof these increased programs were first enacted years ago,\nand while individually they might have appeared manageable\nthen, today -- taken together -- they are out of control. They\nare like a freight train whose lights were first seen far off\nin the night. That train has been coming closer and closer\nand now it is roaring down upon us. If we don't slow it down,\nFederal spending next year could easily jump to more than\n$420 billion without a single new Federal program.\nTherefore, I propose that we halt this alarming\ngrowth by holding spending in the coming year to $395 billion.\nThat means a cut of $28 billion below what we will spend\nif we just stand still and let the train run over us.\nMore importantly, it means almost a dollar-for-dollar\ncut in taxes and spending. For every dollar that we return to\nthe American taxpayer, we must also cut our projected spending\nby the same amount. If we allow politics as usual to prevail\nin the Congress, there will be a temptation to overwhelmingly\napprove the tax cuts and do nothing on the spending cuts.\nThat must not happen.\nI will go forward with the tax cuts that I am\nproposing only if there is a clear, affirmative decision by\nyour representatives in the House and the Senate that they\nwill hold spending next year to $395 billion. I will not\nhesitate to veto any legislation passed by the Congress\nwhich violates the spirit of that understanding.\nI want these actions to be a first step, and they\nare a crucial step, toward balancing the Federal budget\nwithin three years.\nIn January, I will propose to the Congress that many\nof our current spending programs be revised, consolidated\nand held below their projected levels. When I do, you will\nhear loud protests from one group after another contending that\nWashington should keep up an endless flow of subsidies. But\nwe have to face hard reality: our financial resources are\nlimited. We must learn to live within our means.\nMORE\nPage 5\nSpending discipline by the Federal Government must\nbe applied across the board. It cannot be isolated to one\narea such as social programs nor can we completely insulate\nany area such as defense. All must be restrained. I believe\nthat your Congressmen should stop trying so hard to find new\nprograms that spend your money and get to work figuring out\nhow to make the Government work better for you. They should\nget rid of the programs that don't work in order to make room\nfor those that do.And, in the process, can begin cutting\nback the swollen Federal bureaucracy.\nI want to work with the Congress and with you,\nthe people, to insure that those who deserve the help of our\nNation continue receiving that help. The elderly, the poor\nand the men and women who have borne our Nation's arms.\nAlso, I will not permit reductions in our military budget\nthat would jeopardize our national security. We must\nmaintain a strong economy and a strong national defense.\nSometimes when fancy new spending programs reach\nthis desk, promising something for almost nothing\nand carrying appealing labels, I wonder who the supporters\nthink they're kidding. From my visits with the American\npeople, I find many of them believe that what the Government\nputs in your front pocket, it slips out of your back pocket\nthrough taxes and inflation. They are figuring out that they\nare not getting their money's worth from their taxes. They\nbelieve that the politics of Federal spending has become too\nmuch of a shell game. And I must say that I agree with them.\nAmerica's greatness was not built by taxing people\nto their limits but by letting our people exercise their freedom\nand their ingenuity to their limits. Freedom and prosperity\ngo hand in hand. The proof is there to see around the world.\nOnly by releasing the full energies of our people -- only\nby getting the Government off your back and out of your pocket --\nwill we achieve our goals of stable prices and more jobs.\nI deeply believe that our Nation must not continue\ndown the road we have been traveling. Down that road lies the\nwreckage of many great nations of the past. Let us choose\ninstead the other road, the road that we know to be tested,\nthe road that will work.\nAs your President, I cannot take this journey alone.\nI need the help of you, the American people, to persuade\nyour Congressmen and your Senators that you want the growth\nin Government spending cut so that your taxes can be cut now.\nI need the help of the farmer in Iowa, the housewife in\nCalifornia, the retired couple in Florida, the small business-\nman in New Jersey, the student in Texas -- all of you. This\nmust be a national effort. America should not belong to the\nGovernment, but to the people. You can serve the Nation by\nhelping us make the right choice for the future.\nThank you, and good evening.\nEND\n(AT 8:20 P.M. EDT)\nEMBARGOED FOR RELEASE\nOCTOBER 6, 1975\nUNTIL 8:00 P.M. EDT\nOffice of the White House Press Secretary\nTHE WHITE HOUSE\nFACT SHEET\nTHE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT\nPresident Ford is proposing that permanent large tax cuts be made\npossible for American taxpayers by Congress joining with him in\nlimiting the growth of federal expenditures. The tax reductions\nproposed by the President total about $28 billion compared to 1974\nlaw. This proposal is linked to the adoption by the Congress now\nof a spending ceiling of $395 billion for FY 1977. This represents\na reduction of about $28 billion from projected levels for that\nyear unless action to limit federal spending is taken.\nThe proposed tax cuts are divided approximately 75 percent for\nindividuals and 25 percent for business. A family of four earning\n$14,000 a year would receive a reduction in their tax liability\nof $412 or 27 percent.\nI. SUMMARY OF THE TAX CUT PROPOSAL\nA. The individual tax reductions will be accomplished by:\n$8 billion in cuts to replace the temporary 1975\ntax reductions.\n$4 billion in additional cuts required to keep\npersonal withholding rates constant. (The 1975\ncut was reflected in withholding over an eight-\nmonth period and, therefore, a $4 billion extra\ncut is provided to keep withholding constant.)\n$8.7 billion in further tax relief distributed\nthroughout all income ranges.\nB. The business tax reductions will continue the tax\nrelief for small business provided by the 1975 Act, will\nmake permanent the higher investment credit rate of 10 per-\ncent as an incentive for investment in equipment needed to\nincrease productivity and to provide new jobs, will reduce\nthe marginal rate on business income as a first step toward\neliminating the existing tax bias against capital formation,\nand will provide special relief to utilities needed to reduce\ndependence on foreign energy sources.\n2\nC. The recommended changes in the individual and business\nincome tax structure, and their costs, as compared to 1974\nlaw, are as follows:\nIndividual Tax Cuts\nIncrease personal exemption from $750\n$10.1 billion\nto $1,000.\nReplace $1,300 low income allowance\n$ 4.0 billion\nand $2,000 maximum standard deduction\nwith flat amount standard deduction\nof $2,500 for married couples ($1,800\nfor a single person)\nReduce tax rates\n$ 6.6 billion\nTOTAL INDIVIDUAL TAX CUTS\n$20.7 billion\nBusiness Tax Cuts\nExtension of 1975 corporate rate\n$ 1.7 billion\nand surtax exemption changes\nPermanent extension of investment\n$ 2.5 billion\ncredit increase (from 7-10; 4-10\nfor utilities)\n2% corporate rate reduction (48-46%)\n$ 2.2 billion\nUtilities tax relief previously\n$ 0.6 billion\nproposed (see Annex C)\nTOTAL BUSINESS TAX CUTS\n$ 7.0 billion\nTOTAL TAX CUTS\n$27.7 billion\nThe effects on individual taxpayers of the President's tax\nproposals are shown in the following tables:\n3\nTax Liabilities for Family with 2 Dependents,\nFiling Joint with Itemized Deductions of\n16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized\ndeduction, family uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n:\n1975\n:\nProposed\n1972-74\n: 1975\nincome\nlaw\n:\nlaw\n: 1976 law\nlaw\n: law\n$ 5,000\n98\n0\n0\n98\n0\n7,000\n402\n186\n60\n342\n126\n10,000\n886\n709\n485\n401\n224\n15,000\n1,732\n1,612\n1,325\n407\n287\n20,000\n2,710\n2,590\n2,280\n430\n310\n25,000\n3,820\n3,700\n3,370\n450\n330\n30,000\n5,084\n4,964\n4,648\n436\n316\n40,000\n8,114\n7,994\n7,664\n450\n330\n50,000\n11,690\n11,570\n11,180\n510\n390\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\nTax Liabilities for Single Person with Itemized\nDeductions of 16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized deduction,\nindividual uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n:\n1975\n: Proposed\n1972-74\n:\n1975\nincome\nlaw\n:\nlaw\n: 1976 law\nlaw\n:\nlaw\n$ 5,000\n$\n490\n$\n404\n$\n307\n$ 183\n$ 97\n7,000\n889\n796\n641\n248\n155\n10,000\n1,506\n1,476\n1,227\n279\n249\n15,000\n2,589\n2,559\n2,307\n282\n252\n20,000\n3,847\n3.817\n3,553\n294\n264\n25,000\n5,325\n5,295\n5,015\n310\n280\n30,000\n6,970\n6,940\n6,655\n315\n285\n40,000\n10,715\n10,685\n10,375\n340\n310\n50,000\n15,078\n15,048\n14,725\n353\n323\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\n# #\n4\nII. FULLER DESCRIPTION OF PROPOSED TAX CUTS\nA. Individual Tax Cuts\nThe proposed permanent restructuring would replace the\ntemporary increased standard deduction and the $30 per taxpayer\nexemption credit provided by the 1975 Act. The changes\nassure that withholding will not be increased and\nthat, in fact, there will be further tax reductions for\nthe great majority of taxpayers. As compared to 1974 law,\nthe President's proposal would:\n-- Increase the personal exemption from $750 to $1,000.\n-- Replace the present minimum standard deduction (low\nincome allowance) of $1,300 and maximum standard\ndeduction of $2,000 by a single standard deduction in\na flat amount of $1,800 for a single taxpayer and\n$2,500 for a married couple ($1,250 for married person\nfiling separately). This compares with the average\nstandard deduction claimed in 1974 of $1,625 by married\ncouples and $1,400 by single persons. (The 1975 Act\nmade temporary changes in the standard deduction, which\nare described in Annex D.)\n-- Provide rate reductions as shown in the tax rate\nschedules attached at Annexes A & B.\nB. Business Tax Cuts\nThe President also proposes to:\n-- Reduce the maximum corporate tax rate from 48 percent\nto 46 percent.\n-- Continue the 1975 Act increase in the surtax exemption\n(which determines the amount taxable at rates below\n48 percent) from $25,000 to $50,000 of taxable income.\n-- Continue the 1975 Act reduction in the rate on the\nfirst $25,000 of taxable income from 22 percent to 20\npercent (the second $25,000 of taxable income will be\ntaxable at a 22 percent rate, with the balance of\nincome taxed at a 46 percent rate).\n-- Make permanent the 1975 Act increase in the investment\ncredit from 7 percent (4 percent in the case of public\nutilities) to 10 percent.\n-- Enact a six-point program to provide tax relief to\nelectric utilities and to reduce dependency on foreign\nenergy sources (see Annex C for full description).\nmore\n5\nIII. BACKGROUND ON FEDERAL SPENDING\nA. Unless action is taken to restrain federal outlays in FY\n1977, spending can be expected to increase by around $53\nbillion in a single year. Budget outlays are approaching\n$370 billion in FY 1976. Without specific legislative action\nto limit spending, outlays in FY 1977 will reach $423 billion\nor more. The main elements of an increase of $53 billion\nare as follows:\n(Billions)\nInterest on the public debt will rise as\nthe size of the debt grows. If current\ninterest rates are maintained, the in-\ncrease will approach\n+9\nCivilian and military salaries increase\nautomatically unless the President and\nCongress agree on an alternative plan.\nWould add more than\n+6\nRetirement benefits for retired federal\nmilitary and civilian personnel also rise\nautomatically with the cost-of-living\n+3\nSocial security and railroad retirement\npayments increase automatically based\nupon the cost-of-living index\n+12\nMedicare and Medicaid payments rise as\ncosts increase and the number of eligible\nrecipients go up\n+5\nPublic assistance, food stamps,\nhousing subsidies and related\nprograms are tied to the formulae set\nin law or in existing contracts\n+2\nMajor construction of wastewater treat-\nment plants now underway will add nearly\n+2\nEssential procurement and research and\ndevelopment of military hardware and\nmaintenance of necessary military\nfacilities will add over\n+3\nIncreases for energy research and develop-\nment and transportation programs and\ninclusion of Export-Import Bank in budget.\n+4\nOther likely net changes including effect\nof Congressional inaction on budget reduc-\ntion proposals heretofore proposed by the\nPresident and the effect of probable\nCongressional initiatives\n+7\nTOTAL\n53\n6\nB. Decisions have not yet been made on which programs will\nbe restrained or curtailed.\n-- Specific decisions will be made in the budget\nreview process leading up to the President's\nJanuary Budget Message to Congress.\n- All departments and agencies will be called upon\nto moderate program growth, expenditures, and\nFederal personnel levels.\nC. The President has called upon Congress to join with\nhim in making the tax reductions possible by placing a\nlimit of $395 billion on FY 1977 expenditures now.\n--- A $395 billion ceiling is $25 billion above the\ncurrently estimated spending level this fiscal\nyear and $28 billion below the level now pro-\njected for FY 1977.\nD. Based upon current estimates that FY 1976 spending\nmay approach $370 billion, the FY 1976 budget deficit\nwould be about $70 billion. With the President's\nproposals, the FY 1977 deficit is estimated in the\nrange of $40-44 billion.\n# # # # #\nEMBARGOED FOR RELEASE\nOCTOBER 6, 1975\nUNTIL 8:01 P.M. EDT\nOFFICE OF THE WHITE HOUSE PRESS SECRETARY\nTHE WHITE HOUSE\nPRESS CONFERENCE\nOF\nWILLIAM E. SIMON\nSECRETARY OF THE DEPARTMENT OF TREASURY\nJAMES T. LYNN\nDIRECTOR OF THE\nOFFICE OF MANAGEMENT AND BUDGET\nALAN GREENSPAN\nCHAIRMAN OF THE\nCOUNCIL OF ECONOMIC ADVISERS\nAND\nCHARLES WALKER\nASSISTANT SECRETARY OF THE TREASURY\nROOM 450\nEXECUTIVE OFFICE BUILDING\n5:44 P.M. EDT\nMR. NESSEN: I don't know who the leader of this\ngroup is.\nSECRETARY SIMON: I will start.\nYou know the President has been working for several\nweeks on questions relating to Federal taxes and spending.\nTonight, he has asked for television time, which Ron just\nspoke to.\nFirst, as you can see from the fact sheets, the\nPresident is going to propose a substantial and permanent\nreduction in Federal taxes, going far beyond the temporary\ntax cut that expires at the end of this year. The total\ncut will beapproximately $28 billion, approximately three-\nquarters for individuals and one-quarter for business.\nSecondly, he is going to propose a substantial\nreduction in Federal spending, below those levels that are\nprojected for fiscal year 1977. Jim Lynn is going to\nelaborate in a second, before your questions.\nFederal spending will, in fiscal 1977, easily\nsurpass $420 billion unless affirmative action is taken, and\ntaken right now. The President is asking that the spending\nbe held in fiscal 1977 to $395 billion, a reduction of an\nequivalent amount of $28 billion.\nMORE\n- 2 -\nI want to emphasize how important it is that\neveryone understand that these two proposals are regarded\nas one package. The President is going to ask Congress\nto act on them both now, and he is insisting that only if\nCongress is willing to adopt a spending ceiling for fiscal\n1977 will he go forward with these major taxcuts.\nIt would be dangerous and irresponsible to cut\ntaxes andnot cut the growth in Federal spending. That would\nonly leave us with huge deficits, higher interest rates and\nmore inflation and eventually more unemployment.\nSo, the two proposals are inextricably tied\ntogether, and we are presenting them as one single package.\nTogether, they are designed to return more economic decision-\nmaking to our private sector.\nThe President is going to address more fully\ntonight why it is important to halt the trend toward big\nGovernment in this country. In this session, I want to talk\nmore specifically about three particular advantages of this,\nwhat we consider balanced fiscal package: the economic\nadvantages, the financial advantages and the psychological\nadvantages.\nFirst of all, on the economic side, in the short-\nterm this package will provide us with a stronger foundation\nto sustain the momentum of our current recovery. In the\nlong-term, the discipline imposed upon the growth in the\nbudget will reduce the inflationary pressure generated by\nFederal spending.\nThere can be no question that curbing the\nexplosive growth is an essential weapon in the long-term\nfight against inflation. Furthermore, by reducing taxes,\nas well as spending, we will also encourage greater savings\nand investment, a process that is imperative if we are to\ncreate jobs and increase productivity and increase real\nearnings in this country.\nIn short, it is going to provide a higher standard\nof living for all of us.\nSecond, this program will improve conditions in the\nfinancial markets. By tying spending cuts to tax cuts, the\nPresident is insuring that during the next few years our budget\ndeficits will be progressively smaller and the Federal\nGovernment will not soak up as much money through borrowing\nin our private capital markets.\nFor all practical purposes, too many small- and\nmedium-sized businesses are crowded out of our capital\nmarkets today. By reducing Federal borrewing, the Government\nwill reduce the upward pressure it places on interest\nrates. Lenders are going to be more willing to lend long-\nterm and more private borrowers are going to gain access\nto the credit markets.\nMORE\n- 3 -\nAgain, this process is essential for assuring\nlong-term economic growth. As the President will say\ntonight, our ultimate objective is to bring the budget into\nbalance within three years.\nPsychological: Finally we have to take into\naccount the public's perception of Government itself.\nClearly, public confidence in the Government's ability to\nreduce inflation has been eroded by the last decade of huge\nincreases in Federal spending, along with the huge increases\nin our budget deficits.\nOver time, that process has built inflationary\nexpectations into all of our society. The President is\nintent upon changing those expectations through this\nporgram and further efforts in the future.\nLet me re-emphasize the determination of the\nPresident and the full Administration to stop the uncontrolled\ngrowth of Government outlays and to return to the American\npeople more of the decision-making on how their incomes are\ngoing to be spent.\nUnless action is taken, Federal Government spending\ncan be expected to increase by approximately $53 billion in fiscal\n1977. Outlays as a share of GNP will continue to rise.\nOutlays in fiscal 1977 would reach $423 billion. Roughly,\nfour and a quarter times higher than outlays just 15 years\nago.\nThe President's program is designed to restrain\nthis growth and to reduce the share of GNP going into the\nFederal Government. This plunging process is vital to the\neconomic and financial well being of our people.\nI might add that in my recent testimony before\nthe Congress, I have been heartened by the desire expressed\nby both budget committees to work with us in holding down\nspending and holding down the attendant deficits.\nWe hope that the full Congress is now going to\njoin with us in adopting this very important package that\nthe President is submitting.\nNow Jimmy would like to, I am sure, address the\nexpenditure side.\nMR. LYNN: Bill, I think you have covered it\nsufficiently for openers. I would, kind of reversing the\nroles a little bit, draw your attention specifically to the\ntables that are included in the fact sheet showing the\nimpact on the various families.\nMORE\n- 4 -\nWhat we have here is a situation where practically\ndollar for dollar, if you compare the 1974 law before the 1975\ntemporary cuts were put in, of a dollar for dollar reduction\nin the expenditures from where they would have gone without\nrestraing for a comparable amount of benefit on the side\nof tax reductions.\nI think at this point, unless Alan, you have some-\nthing to add, why don't we let these ladies and gentlemen\nask their questions. That is the most important thing.\nQ\nOn those very tables you mentioned, can\nwe have some figures below $5,000 of income, and why weren't\nthey supplied in the first place?\nMR. WALKER: I think we have them not below $5,000\nbecause of the non-change that is involved there.\nQ\nNot for single people. There are changes, some\nof whom are tax exempt now, and I am wondering if they\nwould still be tax exempt under this proposal?\nMR. WALKER: I can see that.\nSECRETARY SIMON: I can show you that, Eileen,\nbecause I have a table that shows you the new tax exempt\nincome for singles and marrieds.\nQ\nMr. Secretary, you say these proposals of\ntax and spending ceilings are linked. Are they going to\nbe linked in their presentation to the Hill, and is there\nany way that this can be done through the statutory\nprovisions?\nSECRETARY SIMON: What the President is going\nto do is urge the Congress to adopt a spending ceiling\nfor fiscal year 1977 of $395 billion. At that point, he\nwould accept the tax reduction as outlined here on the\ntax side.\nQ\nIs the President going to save $28 billion?\nQ\nWill it be something informal? You are not\ngoing to propose a tax bill to Ways and Means that would\nhave a spending ceiling tied into it?\nSECRETARY SIMON: The Ways and Means Committee\nwill be told the conditions under which we would accept\nthis type of a tax proposal, that is correct.\nQ\nDoes that mean that if the Congress will not\nvote your ceiling that the President will oppose and perhaps\nveto tax cuts in the coming election year?\nMORE\n- 5 -\nSECRETARY SIMON: If the Congress rejected the\nnotion of putting a $395 billion spending limit on the\nfiscal 1977 budget and sent down a tax bill here, in this\nregard this President would veto it.\nQ\nCan I follow that? From a practical stand-\npoint, however, isn't it likely that we would act on\nthe tax cut this fall? They don't have to take up the\nquestion of the ceiling until next year.\nSECRETARY SIMON: I want Jimmy to talk to this,\ntoo. We think they have got plenty of time in the three\nmonths that are remaining. They have been working for\nseveral months, the budget committees, on fiscal 1976.\nThey have the figures for 1977. We are going to be\ndelighted to work with them on processes.\nMR. LYNN: I suppose they could do almost anything,\nyou are right. They could delay, but it seems to me the\ndelay will cost the taxpayers money. What our hope would be\nis that they take action on both sides of this equation now\nso that the taxes can take effect -- the cuts could take\neffect -- as of January 1.\nQ\nThe question did not suggest that they would\ndelay on voting the tax cut, but after all, they, just\nwithin the last few weeks, set the ceiling on fiscal 1976,\ndidn't they? So, is it reasonable to expect them to set\na ceiling on fiscal 1977 this fall?\nMR. LYNN: I most certainly think it is. First,\nlet me say I have been testifying before the Congress that\none of the things that have disturbed me so much is that\nI see consideration of various programs before the Congress,\nincluding consideration of extension of the tax cut without\nany figures being explored with respect to what the effects\nare in fiscal year 1977.\nJust to give you an example, the President vetoed\nthe education bill. The effect of that override of his\nveto is to add almost $1 billion to expenditures in fiscal\nyear 1977.\nWe don't see, frankly, how they can take action\nwith respect to the taxes without setting for themselves\nnow a target, as we have done.\nQ\nMr. Lynn, you have got $53 billion worth of\nexpenditures detailed here. Are you now, or is the President\nlater, going to send up a list of specific cuts of the total\n$28 billion, or are you leaving that all to the Congress?\nMR. LYNN: Oh, no. Of course we will. We are\ndoing that in the budget process. What we are doing now is\nour usual budget review that occurs this time of year. This\nbudget will be presented to the President, he will make his\nchanges in it, and all of those cuts will be expressly set\nforth in his January budget for fiscal year 1977.\nMORE\n- 6 -\nQ\nIn order for Congress to take action now,\ndon't you have to provide a list of where you want the\n$28 billion cut?\nMR. LYNN: No, I don't think SO. My own feeling\nabout that is that Congress can adopt an overall ceiling\nto show their concurrence with this approach of trying to\nmoderate the growth of Government and give the American\ntaxpayers a break without having their detailed make-up.\nWe have done enough work in the course of the last months\nto see that it can be done. Now, very frankly, the\nexact ways that it should be done should be to determine\nin concert with the departments and agencies\nThey have a principal role here and we want to see\nthat they play those roles and will develop that budget\njust like the budget committees will be working on details\nof their budget when they see the President's budget.\nAll we are asking at this point is that they adopt\nan overall ceiling, not the make-up of that ceiling.\nQ\nMr. Lynn, as you know, many previous\nAdministrations have been frustrated by trying to impose\na firm ceiling on Congressional spending and I suppose one\nreason for that is that many of these spending programs\nare open-ended in their appropriations impact. How do you\nspecifically plan to deal with such problems where Congress\nauthorizes spending under a program and sets no ceiling\nas long as people qualify?\nMR. LYNN: You mean so-called entitlement programs\nwhere anybody that qualifies can come in.\nI think what it takes in that area is legislative\naction. It takes affirmative legislative action. You are\nabsolutely right, that does not lie within the control of\nthe President. That is why he is calling on the Congress\nto join him in this effort.\nThis cannot be done by the President acting alone,\nit does require the cooperation of the Congress.\nQ\nMr. Simon, glancing quickly at the figures\nhere, it does seem that the higher the income, the larger\nthe tax reduction, and it also seems that a special provision,\nsuch low income allowance from the 1975 laws, is now being\neliminated. Is that the general thrust of this proposal\nby the President?\nMORE\n- 7 -\nSECRETARY SIMON: In general. You have to go through\nand take a look at the singles and the marrieds and how the\nvarious dependents are affected. Basically, the maximum\nbenefit does not come at the maximum income. With the cut-\noff the maximum benefit is approximately the $25,000 income\nlevel and, naturally, there is some flow-throught effect from\n(A) a combination of the 1975 tax reduction, plus the mag-\nnification.\nNow, let me explain to you what magnification is.\nThe 1975 tax reduction was for an 8-month period; that was\n$8 billion for individuals. In order to annualize it for\na 12-month period we had to make it $12 million so that\nis 50 percent larger. We then added, of course, the $8.6\nbillion more and provided this restructuring, removing, as\nyou said, Phil, that to simplify, just have a single\nstandard deduction.\nQ\nMr. Simon, does this package have your full\nsupport?\nSECRETARY SIMON: Wait a minute. Alan wants to\nadd something to that.\nMR. GREENSPAN: I think if you will take the\npercentage changes in tax liability, they start the highest\nat the lowest level and they proceed downward thereafter\nthroughout the whole tax schedule so that I would say the actual\npercentage change in taxes is very small at the bottom end\nof the scale.\nSECRETARY SIMON: Let me give it to you in the\nzero to $5,000 area, the percentage reduction in tax liability\nis 61.3 percent.\nQ\nCompared to which year?\nSECRETARY SIMON: That is with the tax reduction\nproposals at 1975 levels of income, Eileen.\nQ\nBut compared to 1975 law or --\nSECRETARY SIMON: That is compared to the 1972-4\nlaw before the 1975 change.\n$5,000 to $10,000 the tax reduction in tax liability,\n35 percent; 23 percent in the $10,000 to $15,000; 17.7 in\nthe $15,000 to $20,000; and 11.7 in the $20,000 to $30,000\nso that you can see --\nQ\nLet's have that compared to the 1975 law.\nQ\nAre you talking about the dependents now or\nsingle?\nMORE\n- 8 -\nSECRETARY SIMON: That is the income distribution\nof the President's tax reduction proposal. That is overall.\nQ\nWhat was the last figure?\nSECRETARY SIMON: 11.7 in the $20,000 to $30,000.\nQ\nCan we have those compared to present law;\nthat is, 1975 law?\nMR. GREENSPAN: It will show the same.\nQ\nLet's have the numbers.\nSECRETARY SIMON: We don't have the numbers\ncompared to the 1975 law. We have it magnified but that would\nnot show the same as the 1975 laws that exist today. We have\nit magnified to the -- you know, adding the $4 billion, the\n50 percent on and the percentages change at that point but\nstill heavily weighted and we only have it on the percentage\nreduction -- no we don't have the specific one you say to\nthe existing 1975 tax law.\nQ\nAre all these cuts permanent or only some of them\npermanent and some of them temporary?\nSECRETARY SIMON: No, this is a permanent tax\nreduction recommendation by the President.\nQ\nMr. Secretary, what is the economic situation\nthat has caused you to decide not only to continue the 1975\ntax reductions but to increase them substantially?\nSECRETARY SIMON: When we talk about the\neconomic situation, what we are trying to do,as I say,\nis control the explosive growth,as I said in my opening\ncomments, and in Federal spending.\nQ\nThat is nine months after the start of the\ncalendar year.\nSECRETARY SIMON: We are talking about fiscal\nyear 1977 as well and I, myself, have always personally\nfavored tax reductions to return the decision-making\nback to the American people if at the same time we can\nhave a simultaneous reduction in expenditures, permanent\nreduction.\nQ\nBut the permanent reduction, as I understand\nthe program, does not apply to the months immediately ahead.\nIt only applies to fiscal 1977.\nSECRETARY SIMON: No. Obviously the six months\nimmediately ahead for the half a year would be a continuation.\nNo, until July 1.\nMORE\n- 9 -\nQ\nDon't you have a transition quarter?\nSECRETARY SIMON: Well, the investment tax credit\nof course is 1977.\nQ\nDoesn't fiscal 1977 start October 1?\nMR. LYNN: October 1 of next year.\nQ\nSo it is nine months.\nMr. Simon, could you tell us then what the\neconomic factors are that would make you decide to do this?\nSECRETARY SIMON: Well, I tried to outline it__ that\nthere were economic and psychological and, of course,\nfinancial market-related reasons why we should reduce this\ngrowth in spending and reduce the deficit,as I said in my\nopening remarks.\nQ\nWell, does the recovery seem inadequate?\nSECRETARY SIMON: No, it most certainly does not.\nAs I believe Alan's last report, the third quarter growth\nwill be reported in the next couple of weeks and is going to\nshow strong real growth -- I think stronger than anyone had\noriginally predicted, and that real growth is projected.\nThe average real GNP growth through June 30, 1976,\nwe can say is still roughly 7 percent.\nQ\nMr. Secretary, did I understand you correctly\nearlier that you said the President would veto a tax cut\nif it were not accompanied by the other?\nSECRETARY SIMON: That is correct. If the Congress\nsent down a tax reduction for a year or permanently in the\nabsence of adopting a spending ceiling for fiscal 1977 of\n$395 billion, he would veto it.\nMORE\n- 10 -\nQ\nAren't you almost certainly getting into a\nsituation, given the way the whole tax thing has gone so far,\nthe way the whole energy thing goes, that you will get a\nproposal from the Congress for a tax cut of at least as large\nas yours, possibly larger, and heavily weighted to the bottom\nof the scale, and you will get the other deferred completely\nfrom consideration until some later date so you won't have\na yes or no and you will sit in this limbo and then the\nPresident has to make a decision?\nSECRETARY SIMON: I would certainly hope you are\nwrong, and as I say, the President has made a decision as\nfar as what he would do, if indeed that happened, and a\ntax bill came down. I think that (a) the way this tax\nproposal has been structured, and (b) the need for a curb\nin Federal spending is well recognized on Capitol Hill,\nas it isin the Executive Branch of Government, so I am\noptomistic that we are going to get some action on a\n$395 billion spending ceiling.\nQ\nWhat form would the spending ceiling take?\nWould it be a budget resolution to the procedures that\nare now in place?\nSECRETARY SIMON: Yes, it would be what, the\nsecond current --\nMR. LYNN: I would think they could do it any\nnumber of ways. One way would be by a resolution of the\nCongress. Another way would be in the preamble to the\ntax legislation. I would not purport to tell or even\nsuggest the manner in which Congress can do it, but I am\ncertain there are a number of ways that they can do it.\nNow, it is the matter of their will to do it if\nthey decide to do it. If a majority of both Houses decide\nto do it, they will find a way to do it, and there are ways\navailable.\nQ\nThe Budget Reform Act reserves jurisdiction\nin the Senate and House budget committees. The Ways and\nMeans Committee does not have anything to do with spending.\nMR. LYNN: Again, I would hope that what we will\nsee in the Congress is a coordination of those efforts. As\nI have said, even in testimony I believe it was before the\nHouse side that one of the things that bothered me was that\nwe were seeing a mark up with regard to a tax extension at\na time prior to even the mark up for fiscal year 1976 on\nthe budget side and on the second concurrent resolution.\nI happen to feel you have got to look at 1977\nnumbers every bit as much as you have to look at 1976\nnumbers when you are deciding what the taxation structure\nought to be from here on out, and that decision is before\nCongress because the old temporary cut runs out December 31.\nMORE\n- 11 -\nQ\nWould you buy a sense of the Congress reso-\nlution, or would it have to be binding law?\nMR. LYNN: Look, after all, the budget resolution,\nfor example, is a sense of the Congress in the sense that\nthey are setting their preliminary target for the existing\nyear. I would suggest they can use the same procedure\nthat they have used for their budget resolution process,\nif that is the way they care to do it, but we certainly\nwould not want to suggest that one way or another is\nabsolutely essential.\nSo long as that signal comes through strongly from\nthe Congress to the American people and to the President that\nthey are willing also to work to keep that $395 billion\nceiling, that will do the trick.\nQ\nMr. Secretary, could I come back to Joe\nSlevin's question?\nQ\nMr. Secretary, the ceiling you are recommending\ndoes not become effective until the fiscal year beginning\nOctober 1, 1976. What effect, if any, do you suggest this\nshould have on appropriations matters before the Congress\nfor this fiscal year current and for the interim period\nbetween July 1 and October 1? Wouldn't that require\nsome cutback so you have an estimate?\nMR. LYNN: As you know, we already still have\nbefore the Congress requests for reductions from what a\ncurrent services path would take you or even more from\nthe path Congress seems to be on on both the authorization\nbill and appropriation bills. I would hope that at the same\ntime -- or I should say in keeping with their agreement to\nalso work with us on the $395 billion ceiling -- they would\nstart looking very hard and adopt the kind of proposals for\nmoderation for 1976 that we have proposed.\nAs you know, now that we are well into the fiscal\nyear, a number of those can't be recaptured for the period\nof time that has already elapsed, but there is still plenty\nof room for them to exercise budget restraint for the\nrest of the year, and we would urge them to do SO.\nQ\nSecretary Lynn, getting back to Joe Slevin's\nquestion about economic rationale for the program and can\neither you or Mr. Greenspan elaborate on that; specifically,\nis this program supposed to have a net fiscal stimulus?\nQ\nQuestion?\nMORE\n- 12 -\nSECRETARY SIMON: Is this program supposed to have\na net fiscal stimulus?\nThis program has, as I said, three parts to it:\nOne, to help sustain the current economic advance. I think\neveryone is pretty generally agreed right now -- that private\nas well as the Government forecasters -- that the economic\nrecovery is well underway and it is going to be strong and\nindeed vigorous here in the early months of the recovery and\ninto the next year.\nThe questions that seem to be raised right now are\nwhat indeed is the third quarter? Some are even questioning\nthe second quarter of the calendar year 1976.\nAlso, a program like this helps to lessen the strain\non the financial system by reducing the inflation itself\nover the long-run and, more importantly, the inflationary\nexpectations as people begin to realize that we are getting\na handle on this budget deficit problem, that we are not going\nto allow this explosive growth in Federal expenditures to\ncontinue at the very larger percentages that they have, and,\nfinally, and just as importantly, to slow the secular Federal\nGovernment inroads into the lives by returning the money\nto the American people that is now being presently spent by\nthe Government.\nAlan, would you like to add to that?\nQ\nBefore you go, Mr. Secretary, on your point\nthat they helped to sustain the economic advance, how do you\nhelp sustain the economic advance when you cut expenditures\nby the same amount that you reduce taxes?\nSECRETARY SIMON: Well, on a simple accounting\nbasis one might say that that has, as I say on a simple\naccounting basis, a neutral effect but I am afraid that\nignores the incentive gain of what happens when this amount\nof money or any amount of money is pumped into the private\nsector and into business creating all of the capital\nformation which is so terribly needed, as you have heard\nme say quite often, and I believe it has very definitely\na net positive effect.\nAl, do you want to add to that?\nMR. GREENSPAN: We have taken the specific proposals\non a quarter-by-quarter basis and got some of them through\nby various numbers of techniques including the regular macro-\neconometric types of procedures.\nMORE\n- 13 -\nStatistically, what we get is slightly larger deficits\nin the next two to three quarters of 1976 calendar year\nand then somewhat lesser thereafter.\nThe amounts involved are not large and, in any\nevent, I would ecarcely describe the effects as being\nclearly affecting the economy one way or the other. This\nparticular program has not been constructive for the purposes\nof affecting the short-run economic recovery in the usual\nclassic sense of the word. The major problem which it has\nattempted to confront is something which anybody who has\nlooked at the extraordinarily burgeoning effect of the rise\nof Federal expenditures as you get into fiscal 1977, 1978,\n1979 -- what you begin to basically recognize is that at some\npoint some basic decision must be made.\nEither we are going to decide to continuously increase\nthe size of Government and ultimately increase taxes in the\nwhole control of the Federal Government of the economy as a\nwhole, or we decide that is the way in which we do not wish to\ngo. The essential thrust of this program I would describe,\nwhile certainly having short-term effects, as any program\nmust, was not constructed in that light and its basic thrust\nis longer term.\nIt's short-term economic effects, as the Secretary\nhas just said, are roughly neutral. The reason I say roughly\nis the fact that some people are going to evaluate part of\nit as positive and part of it as negative and I think others\nwill do precisely the reverse. There is no major impact\nso far as I can see from anybody's evaluation.\nQ\nMr. Greenspan, could you, if you have these\nnumbers, tell us what the net effect would be for the\nfirst, second and third quarters in terms of adding to\nexpendable income? I guess we don't have to do anything\non the Government spending side since there will not be any\nreductions during those first three quarters.\nSecondly, isn't that in fact the stimulus?\nMR. GREENSPAN: Well, the problem that you have\ngot is that at this particular point it is not clear to what\nextent you in fact create stimulus from increasing deficits.\nLet me suggest to you that we have the conventional wisdom\nwhich always says that the greater the deficit, the greater\nthe stimulus, the greater the level of employment. That is\ntrue only in the very restricted confines of our econometric\nmodels which, of necessity, is a very extraordinary abstraction\nfrom reality.\nWe have found, as you are no doubt well aware, that\nthese models have not captured many of the\nthings that\nhave gone on in our economy in recent years and most speci-\nfically in the financial area.\n- 14 -\nAs best we try, and we tried extraordinarily hard,\nto capture these very subtle financial impacts as they affect\nthe levels of production and employment. To the extent that\nwe have failed to do that, it is clear that what we have done\nis underestimated the negative impacts of the so-called\nexpansionary policies on interest rates, on inflation and,\ntherefore, on real growth.\nSo what I am suggesting is that while we do have these\nvarious sorts of figures which you discuss, I would not,\nby any means, describe simply the fact that we do have some-\nwhat higher deficits in fiscal year 1976, specifically the first\nthree calendar quarters, as being ipso facto stimulus.\nMORE\n- 15 -\nMR. LYNN: If I might just add one thing to that,\nif I can, when you look at the figures we have here with\nregard to fiscal year 1976 expenditures, we are making\nsome guesses, some estimates as to where Congress is moving.\nWith the kind of restraint I talked about a little\nbit earlier, that amount of expenditures for fiscal year\n1976 could be kept lower than that, and I would hope also get\nthe difference I cite lower than the number we show there.\nQ\nJust one more question. We are going to have\n$21 billion of $28 billion tax cut effective by October 1\nso you have a net increase of money in the spending stream\nof $21 billion. You are not having any reduction in spending\nduring that same period so, in effect, don't we have a $21\nbillion stimulus for the first three quarters? That is the\nquestion I have.\nMR. GREENSPAN: No, I am not sure those numbers\nare correct.\nQ\nExcuse me. I think to answer that question we have\nto be given the numbers. This table that adds up to $27.20,\n$.7 billion you talk not in terms of the comparison\nwith 1974, but in terms of present law. Can we have those\nnumbers, just that little five or six item breakdown on\npage two here?\nSECRETARY SIMON: We can get those numbers for you.\nThe reason that we didn't do it on the figures that you\nwish is because the 1975 tax laws are temporary law.\nQ\nJust a second.\nMr. Greenspan, is it reasonable or even rational\nto compare what you are proposing for the year ahead with\ntwo years ago in terms of assessing the economic impact?\nCan we really balance a two-year change on the tax side\nwith a one-year change on the spending side, and you are\ntrying to say they are the same thing?\nMR. GREENSPAN: No, no. Let me tell you what the\ncomparisons are. We have ongoing forecasts of the economy\nand what we tend to do is to reflect various different\noptions that are involved in them. The latest forecasts\nthat we have set up are not reflective of obviously 1972\nor 1974, but essentially what has been going on within the\ntax structure as it stands now.\nWhat we have done is superimposed upon them,\nstarting off with expenditure expectations of no actions of\nany sort and running our best estimates that we can, we came\nup, as I indicated several weeks ago, with a real growth\nrate approximating 7 percent to mid-1975 to mid-1976.\nMORE\n- 16 -\nWhat I am suggesting to you is this: We have\nreinstituted new estimates based on this program, and it\ndoes not significantly alter those numbers.\nQ Okay. I wondered, however, if we can't have\na figure to compare existing 1975 law to see what these tax\nchanges really are.\nMR. GREENSPAN: I agree with you. I think that\nis correct and those data should be made available shortly.\nQ\nNow, the second question on the same subject\nof these numbers, differently. I assume that everything, Mr.\nSimon, that you have told us about the percentage tax\nincreases by tax bracket eliminates, leaves out of consider-\nation the fact that you are asking that the work bonus,\nthe earned income credit, be eliminated, and you are now\ncalling it an expenditure.\nTherefore, this thing which is for the low income\nis nowhere in any of these figures, percentage change or\notherwise, that you have given us, is that correct?\nSECRETARY SIMON: The earned income credit is not\nin the President's tax proposals, that is correct.\nQ\nOr in any of these comparison numbers?\nSECRETARY SIMON: Thatis correct.\nQ\nIncluding the tables that show by income\nbracket and so forth?\nSECRETARY SIMON: That is correct.\nQ Mr. Simon, as I see this, the tax reductions\nthat are in effect may begin at the first part of the\ncalendar year, but the spending reductions do not go into\neffect until the third quarter, and so your proposition is\nto cut taxes for the first three quarters for no spending\nand then what happens in November of 1976 is that there is\nan election.\nNow, was that taken into consideration in\ndeciding on the timing?\nSECRETARY SIMON: It most certainly was not taken\ninto consideration. The consideration was that we wanted\na determination by the Congress that fiscal 1977 budget\nexpenditures would be held to $395 billion, which from\ntoday's estimates mean that the proposed cut in the future\nwould be equivalent to the amount of the tax cut that the\nPresident is proposing today, and it had nothing to do\nwith the election in November 1976.\nMORE\n- 17 -\nQ\nDid you seriously discuss any of these\nproposals with Congressional leaders before making them\npublic?\nSECRETARY SIMON: The President is discussing\nthese right at this very moment with Congressional leaders.\nQ\nBut since your Administration, as I under-\nstand it, has a minority in both Houses of Congress and\nsince this will require legislative action, it seems to\nme that you could be accused here of presenting a political\nploy to the Democratic Congress.\nSECRETARY SIMON: I would assume that you can always\nbe accused of presenting a political ploy to Congress, but\nthat does not concern us. We believe that this proposal\nmakes good long run sense to the American people, that they\nbegin to reverse this trend that has been going on in\nGovernment, especially in the last ten years.\nIf they want to attach certain slogans to it,\nsome people, well, so be it. That was not the intent of the\nproposal.\nQ\nThe long-term effect you say is this\nreduction of Federal spending.\nSECRETARY SIMON: The growth in Federal spending.\nQ\nThe short-term effect is to increase the\nFederal deficit and increase the Treasury's borrowing on\nthe market, I believe was the question. Correct me if I\nam wrong.\nWhy is that a good idea now, and why don't they\nhave all the dire consequences that you have been warning\nabout for many months?\nSECRETARY SIMON: The near term effect is slightly\nraising the President's ceiling that he put on at $60\nbillion. That is a fact. The point is that for the longer\nrun considerations they outweigh these shorter run consider-\nations, and I think that if this program were enacted in\nthis fashion, the expectations of the marketplace would be\nthat the Federal Government is finally getting their\nspending under control and we begin to work away at the\nimportant inflationary expectations that are so deeply\ningrained, plus the loss of confidence the American\npeople obviously had based on every policy that is taken\nin the ability of Government to manage their economy and,\nmore importantly, to get their spending and inflation\nunder control.\nMORE\n- 18 -\nI think on the whole the positives far outweigh\nthe negatives of a short-term, as I say, slight increase\nin the deficit.\nQ\nHow much will the deficit go up?\nMR. LYNN: It depends on an awful lot of\nfactors. As you have heard me testify on the Hill, we have\na good deal of uncertainties right now, ranging all the way\nfrom just trying to get a good handle on estimating entitle-\nment. programs, whether we are talking about food stamps or\nsupplemental unemployment benefits and so on.\nQuite apart from that, we have to engage in a\nguessing game as to what Congress will do from here on out by\nway of the kind of salami tactics that we have had up to\nnow, where we propose \"X\" and Congress always feels disposed\nto add \"X plus Y\" to the particular program.\nMy hope would be that Congress, in the spirit of\nthis proposal, will now make a genuine effort to go along\nwith the proposals that are still before the Congress that\nthe President has made. I would think, to give you a rough\nestimate, that we would be able to have a deficit somewhere\nin the middle 60's before we are done.\nWe had to look at the reality that if Congress\ndoes not show that kind of restraint and looking at the\ntotal estimating that is involved, you can have a deficit\nof about $70 billion. But, I have to urge you once again\nthis early in the fiscal year -- and also given all of the\nuncertainties with respect to the estimate -- you can't\ngive a positive single figure at this point and feel con-\nfident that it is SO.\nQ\nJust this itself, how much would this add\nto the deficit?\nQ\nWhat year?\nMR. LYNN: What are you talking about? Fiscal\n1976?\nQ\nFiscal 1976.\nMR. LYNN: The effect of this proposal by way\nof receipts lost over and above, let's say, the magnified\nextension is what? Do we have that? It is what? Five?\nQ\nAll by itself?\nMR. LYNN: All by itself.\nMORE\n- 19 -\nQ\nIt is 11.\nMR. LYNN: It is 11 by itself for what, on a\nfull year basis?\nQ It is 28.\nMR. LYNN: The 28 again, in answer to Miss Shanahan's\nquestion, the 28 is from the 1972-1974 kind of package,\nso what I was giving you was a figure of the net additional\namount if you were to assume things continued the way Miss\nShanahan talked about it.\nQ\nWhat is that total figure from 1975 to 1976?\nThese tax cuts are what?\nMR. LYNN: Say that again.\nQ\nFrom present law --\nMR. LYNN: From present law?\nQ\nFrom present law the total tax cut herein\nproposed is $11 billion, is that right?\nMR. LYNN: About 11, that is right. On an\nannualized basis?\nQ\nNo.\nMR. LYNN: On an annualized basis?\nQ\nShe asked how much the increase is from 1975.\nSECRETARY SIMON: Break it down. First we had\nthe rebates in there, and they are out, so we forgot these.\nRight? Then, we take the individual reductions, which\nwere $12 billion in 1974 and now they are $20.6, so we are\nup $8 billion for the individuals, 1975 over 1976. Then\nthe business cuts.\nIn 1976, the investment tax credit does not\nexpire until January 1977, so the impact is not felt\nuntil fiscal 1977. So, leave out the 2 percent reduction.\nQ Leave that out?\nSECRETARY SIMON: Yes, the 2 percent reduction in\ncorporate tax rates, the impact is on there, so that is\nroughly it.\nQ Let's get clear. This proposal is that you\nare proposing tax law changes which would reduce taxes in\n1976 by $11 billion compared to tax liabilities under\npresent law?\nMORE\n- 20 -\nMR. LYNN: You are talking about calendar year\n1976?\nQ\nYes.\nMR. LYNN: See, that is where our confusion was\ncoming. I was talking fiscal year. You are talking\ncalendar year. As far as receipts, it lost about $11\nbillion.\nIsn't that right, Bill?\nQ\nWhere does that put you?\nQ\nIn comparison with present law.\nMR. LYNN: In comparison with present law?\nQ\nThat is not my question.\nMR. LYNN: That answers one question. Let's take\nanother one. You go ahead,\nQ\nMy question is, how much will be added to the\ndeficit by proposing by this tax proposal, and that is\nassuming that the 1975 tax cut would have expired.\nMR. LYNN: Totally?\nQ Period.\nMR. LYNN: I suppose the way you would estimate\nthat is, first, to take a half of a full year's effect.\nThe full effect of the tax package is roughly $28 billion,\nright? So, you take a half year's effect of that, and I am\nbeing very rough in that.\nMy real expert, Bill Macomber, please feel free to\ncorrect me. Take roughly half of that and that would\nbe the additional receipts lost for the period. But, what\nthe economists also do is take a look at all of the factors\nthat enter into the economy, and what you think that kind\nof tax cut will do by way of signals -- more importantly,\nwhat the restraint provision you are trying to get for\n1977 will do to the business community and to the\nindividuals and, therefore, some part of that receipts loss\nwill build into the deficit.\nQ\nSure you figured it out. I am just asking\nfor the figure. I know what the process is, but what is the\nfigure? Is it $11 billion?\nMORE\n- 21 -\nMR. LYNN: It would not be the total $11 billion\nby any means.\nQ\nIt is not the total $14 billion.\nMR. LYNN: All right, the total $14 billion.\nQ\nWhat is it?\nMR. LYNN: It would be something less than that.\nAlan, would you care to comment on that?\nMR. GREENSPAN: One of the problems he has got is\nthe fact that when taxes are received -- and I think that\nunless you can go through a simulation of the specific\ntax receipts differences, that is not a number you can get\nthat simply.\nDo you have that?\nQ\nYou cannot say how much this will add to the\ndeficit?\nMR. GREENSPAN: No.\nMR. LYNN: We have said that. We have said it in\nthe fact sheet.\nWhat we said at the end of the fact sheet was that\ntaking into account the factors that we know of now, and\nthat includes putting in somewhat of a cushion for Congress-\nional reluctance in the future, as they have in the past,\nto adopt the kinds of restraints that we have proposed, that\nthe deficit for fiscal year 1976 would be about $70 billion.\nQ\nDropping the 40 to 44 in following fiscal\nyear?\nMR. LYNN: Yes.\nQ\nCan we have the breakdown again of that\n$11 billion on the 1975 comparison of the tax cut? In\ncalendar 1975, compared to the temporary 1975 law,\nyou said earlier, how do you break that down?\nMR. LYNN: The way I got to that in my head was--\nand again, Dale, the way we calculated it was--that if you\ntake the 1975 law, the way it is being applied now and\nwith withholding rates, as you have it now, the effect\non a full year basis on whether you take fiscal or other-\nwise, but once it is in effect is about $17 billion -- $17\nbillion, $18 billion, somewhere in there.\nSo, therefore, if you look at your $28 billion,\nthat is what your differential is.\nMORE\n- 22 -\nQ\n$17 billion revenue loss?\nMR. LYNN: Yes, That is revenue loss again.\nThat does not necessarily mean your deficit loss.\nQ\nCan we get a breakdown of numbers parallel\nto the 1972-1974 numbers?\nSECRETARY SIMON: We can pass out what the 1975\ntax act was in the old sheet that gives you the revenue\nimpacts on the 1975 tax act. You have the 1976 act here\nproposed with the revenue impacts and a good many of the\nbusiness tax cuts are the same.\nThe investment tax credit, as I say, does not\nexpire until 1977. Your major difference is in your\nindividual tax cut. Of course, that is offset by the\nrebate, which the $8 billion is off already.\nQ\nWhat you are saying now is the $28 billion\nis made up of the $17 billion worth of cuts this year in\ncalendar 1976 and 11. Is that the 28? There was 17.\nMR. LYNN: Try it again.\nQ\nThe 28 is a combination of $17 billion worth\nof tax revenue loss in this calendar year. What you are\nproposing is 11 for calendar 1976, and that is how you\nget your 28.\nMR. LYNN: It is not quite that because you have\nto distinguish between what the total amount of tax deduction\nis locked into, not individual taxpayers or the like, and\nthat gets you to an annualized amount of about $14 billion,\nI think it is. Is it 14? No, 12 plus. It is somewhere\nbetween $12 billion and $13 billion.\nIf you assume the taxpayers continue to get the\nsame take-home pay, in other words you try to get an\nannualized base so that they keep the same withholding\nthat they have now, you have to add another $4 billion plus\nto that, and that is what gives you the $17 to $18 billion.\nIf you were to have taxes just continue now the\nway our American taxpayers are paying them, with their take-\nhome pay as they get it every month, it would cost you on\nan annual rate about $17 billion, somewhere between $17\nand $18 billion. What this does is add about another $11\non top of that.\nQ\nYes, but if we get to the end of 1976 --\nMR. LYNN: Are you talking calendar?\nMORE\n- 23 -\nQ Calendar.\nMR. LYNN: Okay, I just wanted to know.\nQ\nIf we ever get to the end of calendar year\n1976 --\nMR. LYNN: I hope we do.\nQ\nThen what you will be saying is that $11\nbillion will be lopped off in 1976, isn't that right?\nMR. LYNN: In one way, I see what you are saying.\nIf you were to assume that the temporary tax cut were\nthere forever, if that is the way you looked at it, and\nwe looked upon it as a new ball game that we have to decide\nnow what is the best tax policy for the United States\neffective January 1 -- but if you looked at it your way,\nyou are absolutely right.\nIt was decided in the old law to add at the rate\nof $17 billion a year and under this new change you are\nadding another $11 billion a year. We prefer not to look\nat it that way. We prefer to look at it overall as to what\ndoes this mean by way of a tax program that makes sense for\nthis country for a longer term direction.\nOne thing I will urge you to look at is that in\nthe President's statement--and it should have been\nreflected in the fact sheet, and I am sorry it is not there,\nit should be there -- the President says that this ceiling\nis the first step moving toward a balanced budget within\nthree years.\nNow we think the net effect of all of these\nactions that the President is proposing will be to, one,\nget a much healthier economy; two, return some freedom\nof our taxpayers to spend the money they are earning that\nthey have rapidly been losing over many years in the past.\nMR. NESSEN: There is a Cabinet meeting that these\nthree gentlemen need to go to. It started a couple minutes\nago, so we probably should knock this off.\nQ\nDoes this program mean you will initiate no\nnew programs next year?\nMR. LYNN: Yes, no new spending.\nTHE PRESS: Thank you.\nEND\n(AT 6:24 P.M. EDT)\nEMBARGOED FOR RELEASE\nOCTOBER 6, 1975\nUNTIL 8:00 P.I. EDT\nOffice of the White House Press Secretary\nTHE WHITE HOUSE\nFACT SHEET\nTHE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT\nPresident Ford is proposing that permanent large tax cuts be made\npossible for American taxpayers by Congress joining with him in\nlimiting the growth of federal expenditures. The tax reductions\nproposed by the President total about $28 billion compared to 1974\nlaw. This proposal is linked to the adoption by the Congress now\nof a spending ceiling of $395 billion for FY 1977. This represents\na reduction of about $28 billion from projected levels for that\nyear unless action to limit federal spending is taken.\nThe proposed tax cuts are divided approximately 75 percent for\nindividuals and 25 percent for business. A family of four earning\n$14, a year would receive a reduction in their tax liability\nof $412 or 27 percent.\nI. SUMMARY OF THE TAX CUT PROPOSAL\nA. The individual tax reductions will be accomplished by:\n$8 billion in cuts to replace the temporary 1975\ntax reductions.\n$4 billion in additional cuts required to keep\npersonal withholding rates constant. (The 1975\ncut was reflected in withholding over an eight-\nmonth period and, therefore, a $4 billion extra\ncut is provided to keep withholding constant.)\n$8.7 billion in further tax relief distributed\nthroughout all income ranges.\nB. The business tax reductions will continue the tax\nrelief for small business provided by the 1975 Act, will\nmake permanent the higher investment credit rate of 10 per-\ncent as an incentive for investment in equipment needed to\nincrease productivity and to provide new jobs, will reduce\nthe marginal rate on business income as a first step toward\neliminating the existing tax bias against capital formation,\nand will provide special relief to utilities needed to reduce\ndependence on foreign energy sources.\n(OVER)\n2\nC. The recommended changes in the individual and business\nincome tax structure, and their costs, as compared to 1974\nlaw, are as follows:\nIndividual Tax Cuts\nIncrease personal exemption from $750\n$10.1 billion\nto $1,000.\nReplace $1,300 low income allowance\n$ 4.0 billion\nand $2,000 maximum standard deduction\nwith flat amount standard deduction\nof $2,500 for married couples ($1,800\nfor a single person)\nReduce tax rates\n$ 6.6 billion\nTOTAL INDIVIDUAL TAX CUTS\n$20.7 billion\nBusiness Tax Cuts\nExtension of 1975 corporate rate\n$ 1.7 billion\nand surtax exemption changes\nPermanent extension of investment\n$ 2.5 billion\ncredit increase (from 7-10; 4-10\nfor utilities)\n2% corporate rate reduction (48-46%)\n$ 2.2 billion\nUtilities tax relief previously\n$ 0.6 billion\nproposed (see Annex C)\nTOTAL BUSINESS TAX CUTS\n$ 7.0 billion\nTOTAL TAX CUTS\n$27.7 billion\nThe effects on individual taxpayers of the President's tax\nproposals are shown in the following tables:\n3\nTax Liabilities for Family with 2 Dependents,\nFiling Joint with Itemized Deductions of\n16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized\ndeduction, family uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n: 1975\n:\nProposed\n1972-74\n:\n1975\nincome\nlaw\n:\nlaw\n:\n1976 law\nlaw\n: law\n$ 5,000\n98\n0\n0\n98\n0\n7,000\n402\n186\n60\n342\n126\n10,000\n886\n709\n485\n401\n224\n15,000\n1,732\n1,612\n1,325\n407\n287\n20,000\n2,710\n2,590\n2,280\n430\n310\n25,000\n3,820\n3,700\n3,370\n450\n330\n30,000\n5,084\n4,964\n4,648\n436\n316\n40,000\n8,114\n7,994\n7,664\n450\n330\n50,000\n11,690\n11,570\n11,180\n510\n390\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\nTax Liabilities for Single Person with Itemized\nDeductions of 16 Percent of Adjusted Gross Income\n(If standard deduction exceeds itemized deduction,\nindividual uses standard deduction.)\nAdjusted\nTax Liability\nReduction from\ngross\n1972-74\n:\n1975\n: Proposed\n1972-74\n:\n1975\nincome\nlaw\n:\nlaw\n: 1976 law\nlaw\n:\nlaw\n$ 5,000\n$\n490\n$\n404\n$\n307\n$ 183\n$ 97\n7,000\n889\n796\n641\n248\n155\n10,000\n1,506\n1,476\n1,227\n279\n249\n15,000\n2,589\n2,559\n2,307\n282\n252\n20,000\n3,847\n3.817\n3,553\n294\n264\n25,000\n5,325\n5,295\n5,015\n310\n280\n30,000\n6,970\n6,940\n6,655\n315\n285\n40,000\n10,715\n10,685\n10,375\n340\n310\n50,000\n15,078\n15,048\n14,725\n353\n323\nOffice of the Secretary of the Treasury\nOffice of Tax Analysis\n# #\n4\nII. FULLER DESCRIPTION OF PROPOSED TAX CUTS\nA. Individual Tax Cuts\nThe proposed permanent restructuring would replace the\ntemporary increased standard deduction and the $30 per taxpayer\nexemption credit provided by the 1975 Act. The changes\nassure that withholding will not be increased and\nthat, in fact, there will be further tax reductions for\nthe great majority of taxpayers. As compared to 1974 law,\nthe President's proposal would:\n-- Increase the personal exemption from $750 to $1,000.\n-- Replace the present minimum standard deduction (low\nincome allowance) of $1,300 and maximum standard\ndeduction of $2,000 by a single standard deduction in\na flat amount of $1,800 for a single taxpayer and\n$2,500 for a married couple ($1,250 for married person\nfiling separately). This compares with the average\nstandard deduction claimed in 1974 of $1,625 by married\ncouples and $1,400 by single persons. (The 1975 Act\nmade temporary changes in the standard deduction, which\nare described in Annex D.)\n-- Provide rate reductions as shown in the tax rate\nschedules attached at Annexes A & B.\nB. Business Tax Cuts\nThe President also proposes to:\n-- Reduce the maximum corporate tax rate from 48 percent\nto 46 percent.\n-- Continue the 1975 Act increase in the surtax exemption\n(which determines the amount taxable at rates below\n48 percent) from $25,000 to $50,000 of taxable income.\n-- Continue the 1975 Act reduction in the rate on the\nfirst $25,000 of taxable income from 22 percent to 20\npercent (the second $25,000 of taxable income will be\ntaxable at a 22 percent rate, with the balance of\nincome taxed at a 46 percent rate).\n-- Make permanent the 1975 Act increase in the investment\ncredit from 7 percent (4 percent in the case of public\nutilities) to 10 percent.\n-- Enact a six-point program to provide tax relief to\nelectric utilities and to reduce dependency on foreign\nenergy sources (see Annex C for full description).\nmore\n5\nIII. BACKGROUND ON FEDERAL SPENDING\nA. Unless action is taken to restrain federal outlays in FY\n1977, spending can be expected to increase by around $53\nbillion in a single year. Budget outlays are approaching\n$370 billion in FY 1976. Without specific legislative action\nto limit spending, outlays in FY 1977 will reach $423 billion\nor more. The main elements of an increase of $53 billion\nare as follows:\n(Billions)\nInterest on the public debt will rise as\nthe size of the debt grows. If current\ninterest rates are maintained, the in-\ncrease will approach\n$9\nCivilian and military salaries increase\nautomatically unless the President and\nCongress agree on an alternative plan.\nWould add more than\n+6\nRetirement benefits for retired federal\nmilitary and civilian personnel also rise\nautomatically with the cost-of-living\n+3\nSocial security and railroad retirement\npayments increase automatically based\nupon the cost-of-living index\n+12\nMedicare and Medicaid payments rise as\ncosts increase and the number of eligible\nrecipients go up\n+5\nPublic assistance, food stamps,\nhousing subsidies and related\nprograms are tied to the formulae set\nin law or in existing contracts\n+2\nMajor construction of wastewater treat-\nment plants now underway will add nearly\n+2\nEssential procurement and research and\ndevelopment of military hardware and\nmaintenance of necessary military\nfacilities will add over\n+3\nIncreases for energy research and develop-\nment and transportation programs and\ninclusion of Export-Import Bank in budget.\n+4\nOther likely net changes including effect\nof Congressional inaction on budget reduc-\ntion proposals heretofore proposed by the\nPresident and the effect of probable\nCongressional initiatives\n+7\nTOTAL\n53\n6\nB. Decisions have not yet been made on which programs will\nbe restrained or curtailed.\n-- Specific decisions will be made in the budget\nreview process leading up to the President's\nJanuary Budget Message to Congress.\n- All departments and agencies will be called upon\nto moderate program growth, expenditures, and\nFederal personnel levels.\nC. The President has called upon Congress to join with\nhim in making the tax reductions possible by placing a\nlimit of $395 billion on FY 1977 expenditures now.\n--- A $395 billion ceiling is $25 billion above the\ncurrently estimated spending level this fiscal\nyear and $28 billion below the level now pro-\njected for FY 1977.\nD. Based upon current estimates that FY 1976 spending\nmay approach $370 billion, the FY 1976 budget deficit\nwould be about $70 billion. With the President's\nproposals, the FY 1977 deficit is estimated in the\nrange of $40-44 billion.\n# # # # #"
}