EFFECT OF THE PRESIDENT'S TAX PROPOSALS ON BUDGET RECEIPTS
BY HALF YEARS

CHANGES IN BUDGET RECEIPTS

Budget receipts are estimated to rise by $13.8 billion in 1975 and $18.8 billion in 1976. The year-to-year changes can be divided between those due to growth in the tax base and those due to revisions in the tax structure. Under tax laws in effect on January 1, 1973, receipts would have risen by $14.9 billion in 1975 (from $264.6 billion to $279.5 billion) and by $17.5 billion in 1976 (from $279.5 billion to $297.0 billion). Thus, enacted and proposed tax law changes, which are shown in the accompanying table, reduce the growth in receipts by $1.0 billion in 1975 and increase the growth in receipts by $1.2 billion in 1976.

Individual income taxes.-Individual income tax receipts are estimated at $117.7 billion in 1975 and $106.3 billion in 1976. The proposed tax law changes outlined in the previous section reduce receipts from this source by $6.5 billion in 1975 and $32.8 billion in 1976. In the absence of these tax law changes, individual income taxes would increase by $14.9 billion in 1976 rather than decline by $11.4 billion as is projected here.

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Corporation income taxes.-Corporation income tax receipts are estimated at $38.5 billion in 1975 and $47.7 billion in 1976. Proposed tax law changes reduce these receipts by $2.8 billion in 1975 and increase them by $7.4 billion in 1976. In the absence of these tax law changes, taxes on profits would increase by $2.7 billion in 1975 and would decrease by $1.0 billion in 1976. This 1975 increase-exclusive of tax law changes-is due in large part to a sharp increase in inventory profits in calendar year 1974 caused by high rates of inflation. Corporate profits including inventory profits increased by about $18 billion in calendar year 1974 and are expected to decline by $26 billion in calendar year 1975.

Social insurance taxes and contributions.-Receipts from this source are expected to total $91.6 billion in 1976, up by $5.3 billion from 1975. Included in the total are social security and other payroll taxes, unemployment insurance taxes and deposits, Federal employee retirement contributions, and premium payments for supplementary medical insurance. These receipt figures reflect:

• An anticipated increase in the dollar amount of payrolls covered by social security and by other retirement insurance programs due to expansion of employment and a rise in wage rates. A statutory increase in the taxable earnings base under social security from $13,200 to $14,100 effective January 1, 1975, and an anticipated increase from $14,100 to $15,300 effective January 1, 1976, due to the operation of the automatic adjustment mechanism. The base increase in January 1976 will be determined by the increase in the average taxable wage from the first quarter of calendar year 1974 to the first quarter of calendar year 1975. Excise taxes. Excise taxes are levied on a variety of products, services, and activities. Receipts from these taxes in 1976 are estimated at $32.1 billion, which is $12.2 billion more than in 1975. The proposed legislation for energy taxes increases these receipts by $3.0 billion in 1975 and $15.2 billion in 1976, thus producing the sharp increase in excise tax receipts in 1976. Excise tax receipts in both 1975 and 1976 also reflect the continued phasing out of the telephone excise tax. This tax rate was reduced from 8% to 7% on January 1, 1975, and will be reduced to 6% on January 1, 1976.

Other receipts.-Estate and gift taxes, customs, and miscellaneous receipts are estimated to total $19.8 billion in 1976, an increase of $3.4 billion from 1975. These figures reflect the imposition of increased fees on oil imports, which increases miscellaneous receipts by $1.3 billion in 1975 and $3.8 billion in 1976.

In addition to these budget receipts, the Government receives significant proprietary income from the public. This is derived from various market-oriented activities-such as rents, royalties, and the sale of Government products and property-that are excluded from

budget receipts and instead are treated as offsets to related budget authority and outlays. The detail of proprietary receipts from the public is shown in table 12 in Part 9.

ANALYSIS OF 1974 RECEIPTS

This section explains the differences between actual receipts by major source for the last completed fiscal year and the original budget estimates for that year. The Congressional Budget Act of 1974 requires that this information be included in each budget beginning with the one for 1978, at which time it must be provided for 1976. The information is being added to the budget 2 years earlier to facilitate the transition to the new congressional budget review process.

The table below makes this comparison for 1974. As shown in the table, receipts were about $9 billion higher than originally estimated, with the bulk of the increase due to higher-than-anticipated individual income taxes.

Individual income taxes in 1974 were $7.4 billion higher than originally estimated, largely because personal income was $37 billion higher in calendar year 1973 than anticipated. The higher personal income resulted entirely from higher inflation than originally estimated. In addition, failure to enact legislation proposed in the 1974 budget to provide an income tax credit for nonpublic elementary and secondary

education and to liberalize deductions for individual pension plans. increased individual income taxes by $0.6 billion from the initial estimate. Finally, reapportionment of withheld taxes between individual income taxes and employment taxes increased individual income taxes by $0.5 billion and reduced employment taxes by an equal

amount.

The $1.6 billion increase in corporation income taxes was due to higher profits in calendar year 1973 than expected, offset in part by lower than expected effective tax rates.

Social insurance taxes and contributions were $1.4 billion lower than estimated in the 1974 budget despite higher wages and salaries than anticipated. Part of this downward revision was due to an overestimate of the percentage of wages and salaries covered by social security, and part was due to an overestimate of the percentage of covered wages and salaries below the maximum level subject to tax. The major data source for the percentages assumed in the 1974 Budget was the Social Security Bulletin-Annual Statistical Supplement, 1971. These data were revised significantly in the 1972 Supplement published a year later. Also, receipts from this source were revised downward by $0.5 billion because of the reapportionment of withheld taxes mentioned above. Finally, failure of the Congress to increase railroad retirement taxes as proposed in the 1974 Budget reduced social insurance taxes and contributions by $0.6 billion.

Miscellaneous receipts were $1.2 billion higher than first estimated largely due to an increase in deposits of earnings by the Federal Reserve System, which appear in the unified budget as miscellaneous receipts. This increase resulted from both higher interest rates and larger amounts of debt held by the Federal Reserve System than assumed in the 1974 Budget.

Excise taxes, estate and gift taxes, and customs duties were all within $50 million of the original estimate.