Evening star., 1961-04-21
Challenging Tax Package

PRESIDENT kennedy has asked Con-
greSS to cross some truly new frontiers
in his urgent recommendations for tax
revision during the present session.
Describing his proposals as only a
flrst step toward complete and thorough
reform of the revenue system, but
promising recommendations for com
pleting this task next year, the PreSi-
dent has given the lawmakers an i'm
mediate agenda containing major in
novations in tax policy and a clear
potential for controversy. Furthermore,
in his special message on the subject,
he has emphasized that his proposals
are submitted as q "Set" and. for
reasons OF their inter-relationship and
the desire to balance gains and losses
in revenues, has urged that they be
considered "aS a unit" AS a practical
matter, in the light of his own deadline
for action in this session, 1t is
legislative assignment of large dimen-
SionS
AS anticipated, Mr.. Kennedy's
initial recommendation is directed at
Offering greater incentive to business
and industry for modernization and ex-
pansion Of private production facilities.
1t is a need that has been widely
recognized, and has become more
pressing with the realization that post
war reconstruction of modern industrial
facilities abroad has tended to place us
at competitive disadvantage and has
contributed to our unfavorable balance
of-paymentS position. The President
has proposed to attack the problem, at
an estimated f1rSt-year loss Of SIT billion
in revenue, through an intricate formula
for granting tax credits for new plant
investment, rather than through the
more orthodox program favored by many
economists of liberalizing depreciation
allowances.
Mr.. Kennedy offered several reasons
for his choice. At the same time, for
those who are Skeptical Of the effective
ness OF his approach, he offered two re-
assuring qualifications One was that
the tax credit plan will be q new
venture and remain in need Of review"
with the possibility that Congress may
find 1t desirable to revise 1t to meet
changing needs. The second was that
existing depreciation rules continue
under study by the Treasury Depart
ment and that adoption of the credit
plan would "in no way" forecloss later
action on depreciation changes
Related also to the balance -of-pay-
ments problem, as well as to equity in
taxation" is a second round-breaking
combination Of proposals to end or
modify certain currently legal methods
OF avoiding or deferring tax liability on
American corporate or individual earn
ingS abroad. Taken together, these
recommendations, the President esti-
mates, would increase revenues by at
least $3.50 million per year.
And finally, among his major in
novations, the President ha1 recon-
mended initiation Of Withholding tax
on dividends and interest," sugges-
ton that has been considered by Con-
greSS in the past but never enacted.
Mr.. Kennedy suggested q fiat with
holding rate of 20 per cent and,
apparently to meet criticism that such
system would impose a heavy book
keeping burden on payers of. the
dividends and interest, further Sug-
gested that there be no requirement of
sending withholding statements to
recipients. Related to this recommenda-
ton is one to terminate both the
presently allowed $50-exclusion from
taxable income and the per cent
credit against tax Of such dividend In
come in excess Of $50. These proposals
involve an estimated revenue increase
OF slightly more than 81 billion.
1t would be risky to forecast how
this unusual tax package will fare at
this session. If treated as a unit, as the
President asks, 1t would be unwise and
perhaps impossible to deal with 1t
hastily. Mr.. Kennedy has stated his
objective and his reasons in moderate
words. There is no laShing at Special
privilege" or "tax evaderS" or other
whipping boys of the so-called liberal
tax reformerS. And his promise Of a
more comprehensive program of tax
reform next year should be welcomed
by all. This may help him considerably
in the present instance