BUDGET RECEIPTS This section of the budget describes the major sources of budget receipts and discusses legislative proposals affecting them. In addition, an analysis is provided of the difference between receipts for 1974, the last completed fiscal year, and the original budget estimates of receipts for that year. The detail of budget receipts by source is shown in table 11 in Part 9, and the economic assumptions underlying these estimates are presented in Part 3. SUMMARY Total budget receipts in 1976 are estimated at $297.5 billion, an increase of $18.8 billion from the $278.8 billion estimated for 1975. The estimates of budget receipts for these years reflect proposed legislation to: Temporarily reduce individual and corporation income taxes to provide economic stimulus. • Increase energy taxes through an excise tax and import fee on oil, an excise tax on natural gas, and an increase in business taxes through a windfall profits tax on domestic crude oil. The windfall profits tax collections will result primarily from decontrol of crude oil prices. Return to the economy all of the increased energy taxes, primarily through permanent individual and corporation income tax reductions. Composition of budget receipts.-The Federal tax system relies predominately on income and payroll taxes. In 1976: • Income taxes paid by individuals and corporations are estimated at $106.3 billion and $47.7 billion, respectively. Combined receipts from these sources will account for 52% of total budget receipts. • Social insurance taxes and contributions-composed largely of payroll taxes levied on wages and salaries and paid equally by employers and employees-will produce an estimated $91.6 billion, 31% of the total. • Excise taxes imposed on selected commodities, services, and activities are expected to provide $32.1 billion, 11% of total budget receipts. • Other taxes and miscellaneous receipts will amount to an estimated $19.8 billion, 7% of the total. Full-employment receipts.-While actual receipts are affected by the state of the economy, full-employment receipts are based on estimates of personal and corporate income that would be generated if the economy were continually operating at full employment (con ventionally defined as unemployment equal to 4% of the civilian labor force). Full-employment receipts that would be produced by existing and proposed tax laws were $282 billion in 1974 and are estimated to be $323 billion in 1975 and $352 billion in 1976. ECONOMIC STIMULUS AND ENERGY TAX PROPOSALS On January 13, 1975, the President announced programs to stimulate the economy and to reduce energy consumption. The tax stimulus will take the form of a temporary $16.3 billion income tax cut, with three-quarters of the cut going to individual taxpayers and onequarter going to businesses. The new energy program will permanently increase the cost of oil and natural gas, but will offset the increases in energy tax receipts by reductions in individual and corporation income taxes and by increases in Federal spending. The increase in oil and natural gas prices relative to other prices is designed to reduce imports by inducing consumers and businesses to shift to other sources of energy and to use less energy in total. The proposals as they relate to taxes are discussed below. Economic stimulus.-The income tax reductions to stimulate the economy will reduce receipts by $6.1 billion in 1975 and $10.2 billion in 1976. Individual income tax rebates-which are three-quarters of this $16.3 billion total-will reduce receipts by $4.9 billion in 1975 and $7.3 billion in 1976. These rebates will be in two installmentsone beginning in May 1975 and the other in September 1975-and will be equal to 12% of calendar year 1974 tax liabilities up to a maximum of $1,000. The payment in 1975 is less than in 1976 because it will not be administratively possible to compute and process the rebate for all taxpayers by the end of June 1975. Business taxes will be reduced by raising the investment tax credit for qualifying investment that is put in service in calendar year 1975 or ordered in calendar year 1975 and put in service in calendar year 1976. The maximum credit will be increased from 4% to 12% for utilities and from 7% to 12% for other business. The amount of investment credit that utilities can use to offset their tax liability will be increased temporarily from a maximum of 50% of their tax liability in excess of $25,000 to 75%. The 75% limit will be phased back to the 50% limit that applies to other businesses by 1980. Also, the credit will be extended an additional 2 years for facilities fired by fuels other than oil or natural gas which provide power for generating electricity. These proposals will reduce receipts by $1.2 billion in 1975 and $2.9 billion in 1976. Increased energy taxes.-The higher energy taxes fall into three major categories. First, the President has issued a proclamation increasing import fees on petroleum products by $1 per barrel on February 1, 1975, $2 per barrel on March 1, 1975, and, in the absence of legislation on his energy proposals, by $3 per barrel on April 1, 1975. The estimates presented in the budget assume that the tax proposals will be enacted by April 1 and that the increase in import fees to $3 per barrel will not become effective. Second, a $2 per barrel excise tax on domestic crude oil, and an excise tax on natural gas that is equivalent on a Btu basis to that on crude oil are proposed. The estimates in this budget assume that these taxes take effect on April 1, 1975, increasing receipts by $3.7 billion in 1975 and $19.0 billion in 1976. About 55% of the combined $22.7 billion increase in receipts is due to taxes on oil and about 45% to taxes on natural gas. Third, a windfall profits tax is proposed, retroactive to January 1, 1975, in the form of a graduated tax on the sale of domestic crude oil at prices higher than the nontaxable level, called the adjusted base price. The adjusted base price-which will initially be set at $4.95 per barrel on the average-escalates monthly so that the windfall tax phases out over a number of years. This tax will not affect 1975 receipts because collections will not begin until July 1975 but will increase 1976 receipts by $16.3 billion. Energy tax offsets.-Increased energy tax receipts will be fully offset, partially through reductions in individual and corporation income taxes, and partially through increased Federal spending directed toward those individuals and those sectors of the economy affected by increased energy costs but not compensated by income tax reductions. Individual income taxes will be reduced by three changes. First, the minimum standard deduction will be increased from the present $1,300 for individuals and families to $2,000 for individuals and $2,600 for families. It is estimated that this change will decrease the number of individuals or families subject to the income tax by over 5 million, and will reduce 1975 receipts by $0.6 billion and 1976 receipts by $8.1 billion. Second, reductions in the rate structure-concentrated in the lower income brackets-will decrease 1975 receipts by $0.8 billion and 1976 receipts by $16.3 billion. The effect of these two tax changes on the tax liability for a family of four is illustrated in the table below. CHANGE IN TAX LIABILITY FOR A FAMILY OF FOUR 1 Calculated assuming minimum standard deduction or itemized deductions equal to 17% of income, whichever is greater. Each of these two changes in individual income taxes will be retroactive to January 1, 1975. Withholding schedules will be adjusted beginning June 1, 1975, in such a way that the full year's reduction in tax liability is offset by reducing withheld taxes in the remaining 7 months of the calendar year. Then in January 1976 withholding rates will be adjusted again so that the effect of the tax reduction is distributed over 12 months. Finally, an income tax credit of 15% of expenditures on energysaving home improvements such as storm windows and insulation, limited to $150 over 3 years, is proposed. This credit would reduce 1976 receipts by $0.5 billion. Corporation income taxes will be reduced by lowering the maximum rate from 48% to 42% retroactive to January 1, 1975. This will reduce receipts by $1.8 billion in 1975 and by $6.6 billion in 1976. The following table shows the effect of the tax proposals on receipts by half years. In addition to offsets through the tax system, $7 billion of offsets are included in the budget as outlays to compensate nontaxpayers, State and local governments, and Federal agencies for higher energy costs. The payments to non-taxpayers-estimated at $2 billion-will take the form of an $80 payment for each non-taxpaying adult. It is estimated that 21 million individuals will be eligible for this payment. In addition, individuals and families receiving benefits of less than $80 per adult from the income tax reductions will receive a portion of the $80 per adult payment. |