Evening star., 1963-01-24
Continued From Page Al

economy without any real dan
ger Of initiation, the President
said. His message noted that
the proposals face a fight.
r Says Reforms Are vital
He warned Congress against
cutting tax rates without rais-
ing revenue through reforms
For example, he said, failure
Ito repeal the dividend credit
and exclusion would necessitate
a top-bracket individual tax
rate of 70 per cent rather thar
the recommended IS per cent.
p Treasury officials said the
program would reduce taxes
paid by practically every indi-
'Vidual, except for a handful OF
those in high income brackets
with special circumstances.
Here are highlights of the
program, beyond the rate cuts
~ Itemized Deductions - Indi-
sviduals now may either deduct
from taxable income a flat 10
2 per cent of their earnings, up to
a maximum deduction of 81 900,
.or itemize deductions for such
expenditures as interest, State
and local taxes, charitable con-
~tributions and medical bills.
About 25 million taxpayers now
itemize, because their deduc-
tions total more than 10 per
cent or $1,000.
The President proposed to
raise $2.3 billion of revenue by
disallowing deductions totaling
less than 5 per cent Of gross in
come. For example. a taxpayer
earning $4,000 might itemize
$1,000 of deductions. He now
could claim the full $1,000 as
an offset against income. Under
the new plan, he could deduct
only $1.300-$1 300 minus 5 per
acent of his $4,000 income.
Would Simplify. System
Mr.. Kennedy said deductions
should be allowed only to the
extent that they exceed mini
NAL amounts relative to income
because small normal outlays
cause no serious hardships. He
said the proposal would cause
SIS million taxpayers to stop
itemizing, and so simplify the
tax system.
Standard Deductions - In
stead of claiming a flat STAN
dard deduction of 10 per cent
. of income up to $1,000, the
President proposed, individuals
who do not itemize should be
allowed to deduct $500 plus
800 for each child, to a max
imum Of $1,000.
A man earning S2,500 now
may deduct 10 per cent of that
income, or $3.50. If he has two
q children, the new plan would
q let him deduct $500-$30O for
himself and his wife, plus S100
for each child. But a bachelor
with $4,000 income still could
deduct $1,000 under the old
system, rather than $500 under
the new formula.
This proposal, which would
cost the Government 1920 mil
lion Of revenue, would help only
those with low incomes. A cou-
pie with two children, for ex-
ample, would be taxed only on
income above $4,000. instead of
$2,667 under the existing setup.
Sees $3.50 Million Revenue
2 Dividends Stockholders
now may exclude from taxable
income the first $50 a year re-
ceived from dividends, and also
may subtract from tax pay
ments an amount equivalent to
4 per cent of dividend receipts
above $50. For example, a
stockholder receiving $3.50 Of
dividends now counts only 5000
as income. Then, after figuring
his tax. he subtracts from his
payment to the Government 4
per cent of the 5000 or So.
The President proposed to
rrepeal the $50 dividend exclu-
sion and the 4 per cent tax
credit. The same proposal,
which would raise $3.50 million
of revenue, was ignored by
Congress last year.
- Capital Gains-When a tax
payer makes a profit by selling
such assets as corporate stocks
or real estate, the law now
taxes him at special capital
gains rates instead of ordinary
income rates, If he has held
the asset more than six months.
The capital gains rate is half
the ordinary rate. and does not
exceed rs per cent. The Presi-
dent proposed to allow capital
gains rates only for assets held
at least one year, instead Of
six months.
He also recommended elm
ination Of capital gains treat
ment for stock options. Many
companies give executives a
chance to buy stock at a fixed
price, far below the market
price. If the executive buys
and then sells the stock. his
y profit is taxed as a capital
4, gain. The President said stock
option gains are extra COM
pensation and so should be
taxed as ordinary income.
, Mr.. Kennedy, further, pro-
posed TO tax gains on capital
assets accrued at the time Of
death. A man now may buy
$1,000 Of stock and see It's
value grow TO s1,500 before he
dies and bequeathes 1t TO his
son. Neither the father nor
the son pays any tax on this
$500 gain. Subject TO excep-
tions, the President recon-
mended that the $500 be taxed
at capital gains rates.