*$50 million or less.

-9.4

-13.2

-.5

-2.1

.8

-2.6

-.2

.7

-10.2

-15.8

-.7

-1.5

-4.6

-22.2

-.8

-6.2

5.4

.2

.1

1 This table shows the effect of enacted and proposed tax changes on budget receipts (i.e. cash collections) for the fiscal period shown.

Payments to recipients of such credit in excess of tax liabilities otherwise owed are counted as outlays and are not included in this table.

This provision also has a direct effect on individual income taxes. This effect is included under "other" individual income tax changes.

Although the reduction in individual income tax liabilities resulting from this act apply to all of calendar year 1976, the bulk of the receipts loss occurs in the first half of that year when reduced withholding rates are in effect.

This provision has a direct effect on both individual and corporation income taxes.

Consists of proposed changes in miscellaneous receipts, airport and airway trust fund receipts, and estate and gift taxes.

The President is proposing income tax reductions-linked to reductions in spending as proposed in this budget-to become effective July 1, 1976. These proposed reductions will be permanent and will be about $10 billion larger at an annual rate than the reductions in the Revenue Adjustment Act of 1975 would be if they were extended to a full year. The proposed further reductions will reduce 1977 receipts by about $28 billion. The major provisions affecting individual income taxes-shown here as they will exist in their first full year of effect-are: 1

-An increase in the personal exemption from $750 to $1,000. -Substitution of a flat standard deduction-$2,500 for joint returns and $1,800 for single persons-for the low income allowance and percentage standard deduction.

-A reduction in tax rates.

For corporations, the President is proposing that the rate reductions and the increase in the investment credit enacted in the two previous tax acts be made permanent. In addition, it is proposed that the maximum corporation income tax rate be reduced from 48% to 46% and that legislation be enacted to provide tax relief to electric utilities.

In addition to these changes, several tax incentives being proposed by the President to encourage specific economic activity will reduce individual and corporation income taxes. In order to encourage financial institutions to hold residential mortgages, a new tax credit is proposed as part of the Financial Institutions Act to become effective January 1, 1977. The credit will be a percentage of interest income received on residential mortgages and will range from 1.5% to 3.8% depending on the fraction of the institution's assets held in the form of residential mortgages. Individuals holding residential mortgages will be eligible for the credit at the 1.5% rate. Also, the current tax provision that permits financial institutions to maintain excess bad debt reserves would be phased out. These proposals, combined, reduce receipts by $0.3 billion in 1977.

To stimulate employment in areas of particularly high unemployment (7% or greater), a tax incentive is proposed to encourage construction of new facilities, or expansion of old facilities, in such areas.

1 Combining the effect of the Revenue Adjustment Act and the President's tax reduction proposals the specific provisions that will apply to individual incomes received in calendar year 1976 are: -a personal exemption of $875;

-a tax credit per exemption of $17.50 or a credit equal to 1% of the taxpayer's income (up to $9,000), whichever is larger:

a low income allowance of $2.300 for a joint return and $1,750 for singles;

-a percentage standard deduction of 16% of AGI with a maximum of $2.650 for a joint return and $2,100 for singles;

-an earned income credit equal to 5% of earned income with a maximum of $200; and

an average of the rate structures in effect under the Revenue Adjustment Act and the Presi dent's tax reduction proposals.

This will be accomplished by allowing, in addition to the full investment tax credit, very rapid amortization (one-half the useful life on buildings; 5 years on all capital equipment) when a project in one of these areas is begun between January 20, 1976, and a year later, and completed within 36 months.

Tax incentives are also proposed to induce broader ownership of common stock. This plan will provide a tax deferral for funds invested in stock purchase plans established by employers or directly by individuals. There will be a limit imposed on the maximum annual contribution, and this maximum will be phased out at higher income levels. Funds must remain invested for at least 7 years, and are subject to tax at the time of withdrawal. This proposal will become effective July 1, 1976, and the full deduction will be allowed for calendar year 1976.

Integration of individual and corporation income taxation as outlined in Administration testimony last July is also proposed effective January 1, 1978. The effect on receipts is reflected in the long-range receipts estimates in Part 3.

Legislation will also be proposed to ease the burden of estate and gift taxes on farms and other small businesses. This legislation will not result in a significant loss in receipts.

The other major tax proposals in this budget are to increase social security and unemployment trust fund taxes to place these funds on a sounder financial basis. The combined employer-employee social security tax rate will increase from 11.7% to 12.3% effective January 1, 1977. This rate change will increase receipts by $3.3 billion in 1977. Also proposed is an increase in the Federal unemployment insurance tax rate (from 0.5% to 0.65%) and wage base (from $4,200 to $6,000) effective January 1, 1977. These changes will increase 1977 receipts by $2.1 billion.

CHANGES IN BUDGET RECEIPTS

Budget receipts are estimated to rise by $16.5 billion in 1976 and $53.7 billion in 1977. 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 the tax rates and structure in effect on January 1, 1974, receipts would have risen by $19.4 billion in 1976 (from $290.8 billion to $310.2 billion) and by $61.1 billion in 1977 (from $310.2 billion to $371.3 billion). Thus, enacted and proposed tax law changes, which are shown in the accompanying table, reduce the growth in receipts by $2.9 billion in 1976 and by $7.4 billion in 1977.

1 The effect of the taxable earnings base increase is calculated using a tax rate of 11.7 %. The effect of the tax rate increase is calculated using a taxable earnings base of $16,500.

RECEIPTS BY SOURCE

Individual income taxes.-Individual income tax receipts are estimated at $130.8 billion in 1976 and $153.6 billion in 1977. As discussed earlier, enacted and proposed tax reductions reduce receipts from this source by $13.2 billion in 1976 and $24.4 billion in 1977. In the absence of these tax law changes, individual income taxes would increase by $34.0 billion in 1977 rather than by $22.8 billion as projected here.