BUDGET RECEIPTS This section of the budget describes the major sources of budget receipts and discusses the legislative proposals affecting them. In addition, an analysis is provided of the difference between receipts for 1975, the last completed fiscal year, and the budget estimates for 1975 published 2 years ago. The detail of budget receipts by source is shown in table 12 in Part 8, and the economic assumptions underlying these estimates are presented in Part 3. SUMMARY Total budget receipts in 1977 are estimated at $351 billion, an increase of $54 billion from the $298 billion estimated for 1976. These estimates reflect the effect of: The recently enacted Revenue Adjustment Act of 1975, which reduced corporation and individual income tax liabilities for calendar year 1976 and extended for the first half of that year the withholding rates that were in effect during the last 8 months of calendar year 1975. Proposed permanent reductions in individual and corporation income taxes-larger than the temporary reductions now in force effective July 1, 1976. • A proposed increase in the combined employer-employee social security tax rate, effective January 1, 1977. • A proposed increase in the unemployment insurance tax rate and wage base as of January 1, 1977. . Elimination of the import fees on crude oil and petroleum products imposed in 1975. Composition of budget receipts.-The Federal tax system relies predominantly on income and payroll taxes. In 1977: • Income taxes paid by individuals and corporations are estimated at $154 billion and $49 billion, respectively. Combined, these sources account for 58% of estimated total budget receipts. • Social insurance taxes and contributions-composed largely of payroll taxes levied on wages and salaries, most of which are paid equally by employers and employees-will produce an estimated $113 billion, 32% of the estimated total. • Excise taxes imposed on selected commodities, services, and activities are expected to provide $18 billion, 5% of the total. Other taxes and miscellaneous receipts will amount to an estimated $17 billion, the remaining 5% of the total. Receipts under the full-employment concept.-While actual receipts are affected by the level of economic activity, receipts calculated under the full-employment concept are based on estimates of the amounts of personal and corporate income that would be generated if the economy were continuously operating at full employment (traditionally defined as unemployment equal to 4% of the civilian labor force). Receipts that would be produced by existing and proposed tax laws using this concept are estimated at $323 billion for 1975, $347 billion for 1976, and $389 billion for 1977. ENACTED AND PROPOSED TAX CHANGES In the last year, two temporary tax reductions have been enacted, the first generally applying to income received in calendar years 1974 and 1975 and the second applying to income received in calendar year 1976. The President is proposing that permanent income tax reductions-larger than the temporary reductions now in effect-become effective July 1, 1976, and that certain other tax changes be made. This section discusses the tax reductions enacted in calendar year 1975 and the tax changes proposed by the President. The accompanying table shows the dollar amounts of the changes by fiscal period. The Tax Reduction Act of 1975 (Public Law 94-12) was enacted on March 29, 1975. This act provided a partial rebate of calendar year 1974 individual income tax liabilities, a number of temporary reductions in individual and corporation income tax liabilities, and a few permanent changes in the tax structure. The act also provided a one-time $50 bonus to recipients of social security and certain other social insurance programs and extended the maximum duration of unemployment benefits from 52 weeks to 65 weeks through June 30, The tax rebate was equal to 10% of calendar year 1974 tax liabilities, subject to minimum and maximum rebates. The minimum rebate equaled the lesser of actual tax liability or $100, and the maximum rebate equaled $200. The maximum rebate phased down to $100 between adjusted gross incomes (AGI) of $20,000 and $30,000. The rebate totalled $8.1 billion, almost all of which was paid in May and June of 1975. The major temporary provisions of the Tax Reduction Act affecting individual income tax liabilities-generally for calendar year 1975– were: -A $30 tax credit per personal exemption (except the special exemptions for the blind and aged). -An increase in the low income allowance (minimum standard deduction) from $1,300 per return to $1,900 for a joint return or $1,600 for a single person. -An increase in the percentage standard deduction from 15% of AGI with a maximum of $2,000 to 16% of AGI with a maximum of $2,600 for a joint return or $2,300 for a single person. -An earned income credit for families with dependent children equal to 10% of earned income subject to a maximum of $400. The maximum credit is phased down to zero between AGI or earned income, whichever is greater, of $4,000 and $8,000. For budget purposes, payments to recipients of such credit in excess. of tax liabilities otherwise owed are counted as outlays rather than as reductions in receipts. -A 5% credit, with a maximum of $2,000, on the price of a new home acquired after March 12, 1975, and before January 1, 1976, provided that construction began prior to March 26, 1975. Most of the tax reductions applied to all of calendar year 1975. However, since the act did not become law until the end of March, the change in withholding schedules to reflect the reduction did not begin until May 1, 1975. Withholding rates were then reduced to reflect the full year's tax reduction; these withholding rate reductions were greater than would have been necessary if such reductions had begun on January 1, 1975. The major temporary provisions affecting corporation income tax liabilities were: -An increase in the investment credit-applicable to equipment acquired and put in service in calendar years 1975 and 1976from 7% (4% for public utilities) to 10%.1 This provision also applies to unincorporated businesses and therefore also directly affects individual income taxes. -Corporate tax rate reductions for calendar year 1975, from 22% to 20% on the first $25,000 of income and from 48% to 22% on the second $25,000. The balance of income continued to be taxed at 48%. In addition to the temporary features discussed above, a few permanent tax changes were enacted. The most notable were limits on percentage depletion and revisions in the tax treatment of certain foreign income. Subject to exceptions, percentage depletion was eliminated for major producers of petroleum products. For small producers, the percentage depletion rate remains at 22% through 1980 and then phases down to a permanent rate of 15% in 1985. As indicated above, most of the changes in the Tax Reduction Act were only for calendar year 1975. On December 23, 1975, the Revenue Adjustment Act of 1975 (Public Law 94-164) was enacted, which effectively provided tax reductions for the first 6 months of calendar year 1976. For corporations, the act extended the rate reductions that were enacted in the Tax Reduction Act of 1975. For individuals, however, larger tax reductions (at an annual rate) were enacted in order to maintain the withholding rates that applied during the last 8 months of calendar year 1975. To facilitate a comparison with the provisions of the Tax Reduction Act of 1975 listed above, the provisions described below-which are applicable for only a half year-show the amounts that would apply if the tax reductions for the first 6 months were in effect for a full year. The major provisions of the Revenue Adjustment Act affecting individuals are: -A $35 tax credit per exemption (except the special exemptions for the blind and aged) or an optional taxable income credit equal to 2% of the taxpayer's taxable income up to $9,000, whichever is larger. -An increase in the low income allowance from $1,300 per return to $2,100 for a joint return and $1,700 for a single person. -An increase in the percentage standard deduction from 15% of AGI with a maximum of $2,000 to 16% of AGI with a maximum of $2,800 for a joint return or $2,400 for a single person. -Extension of the earned income credit that was in effect for calendar year 1975. Since these provisions effectively apply to only half of calendar year 1976, the changes will be one-half of the amounts shown if further legislative action is not taken. For example, the tax credit per exemption will be $17.50 instead of $35. |