The Robert MacNeil Report; Tax Reform Act of 1976

JIM LEHRER: Good evening. I`m Jim Lehrer in Washington. Robin is on vacation. Last Friday the U.S. Senate passed a bill called "The Tax Reform Act of 1976," `the end result of three years of work at trying to revise the nation`s federal tax structures. Congressman Brock Adams, Chairman of the House Budget Committee, calls it "a fate worse than death" for the new Congressional budget process; Business Week magazine calls it a "monstrosity;" and Senator Edward Kennedy said the bill is not a reform bill at all -- that it`s full of loopholes, windfalls, special privileges and other provisions "that make our existing tax laws so unfair."

For the average taxpayer there is some good news, though -it makes permanent the temporary increase in last year`s standard deduction and increases the present $30 tax credit to $35. It also strengthens the minimum income. tax law, simplifies the retirement income credit procedure and reduces the state taxes on family farms, small businesses and moderate- sized inheritances. One of the most important changes involves childcare costs. The Senate bill would convert the current deduction into a 20 percent tax credit, meaning that even people who do not itemize their taxes would be able to subtract child care expenses from their final tax bill.

These are just some of the highlights. In its present form the Senate`s tax bill is over 2,000 pages long and we`d be here till dawn, at least, if we tried to examine every item on it. Be sides, it`s a pretty safe bet that many of them will be eliminated during` an upcoming House-Senate Conference Committee meeting, which will have to iron out differences between this bill and the one that the House passed last December.

So tonight we`d like to take a look at just some of the key provisions in this Senate bill, with an eye to determining where the idea of revising the national tax laws has gotten us so far, and where it might lead in the future.

Senator Carl Curtis of Nebraska is the ranking Republican member of the Senate Finance Committee, which drafted the original version of the Senate bill. Senator, how would you characterize the bill?

CARL CURTIS: It`s a very large bill, and it`s complex, but so is our` economy. It raises over 2 billion dollars of additional revenue, it does some things that need to be done; it provides for the first time a modest credit for parents who pay college tuition for their children -- this is something needed very much; it has changed the child care provisions, which you`ve mentioned. It made some things permanent that ought to be settled so people could rely upon them. The estate tax: liberalization was very much needed.

The estate tax was enacted many years ago to reach very, `very large estates. The growth of the economy, plus inflation, has made it something real for the rank and file of middle-class people. I hope that survives the conference -- it needs to be done. There are disappointments in the bill; there are some things I like very much. It`s not as bad as the critics claim for this reason: anyone running for office, or in office, that has no-direct responsibility for the taxes -- it`s easy for them to say you should have closed 2 billion more dollars of loopholes. These candidates and others have gone on for years telling the American people, "Well, if they would just tax somebody else a little more, your taxes could be greatly reduced, the budget would be balanced and we`d pay off the national debt." of course, the Congress should not in just one bill but constantly work to make the tax laws just, to close loopholes. Sometimes that`s in favor of the government, some-. times it should be in favor of the taxpayer. That should be constant; but this idea that you can accuse. somebody else of wrongdoing and if they would just tax somebody else a little more, it will solve all their budget problems -- it just isn`t so`.

LEHRER: Generally speaking, then, you think that you`re not that displeased with the bill, is that correct?

CURTIS: There were changes made from the House bill. The joint committee staff serves both-, the Ways and Means Committee and the Finance Committee. I spent ten years on the Ways and Means Committee before I came over to the Senate. In drafting a massive bill like this they do an excellent job. By the time it`s debated in the House, hearings are held in the Senate, many of the changes are recommended by the staff because a person would be lacking in intelligence if the second look at something didn`t call for some improvement -- this is no reflection on the House. There are many, many problems involved. In the overall the Senate Finance Committee did a good job; they were sustained, in most instances, by roll-call votes on the Senate floor.

LEHRER: Senator, thank you very much. Robert Brandon is Director of Ralph Nader`s Public Citizen Tax Reform Research Group and author of a recently published book, Tax Politics: How They Make You Pay and What You Can Do About It. Mr. Brandon, what do you think of the bill?

ROBERT BRANDON: I`m a little more concerned about the general outcome of the bill. Let me first of all, to put it into perspective, talk about what the Congress had in mind when it began this round of tax reform. It was a very modest goal that it had in mind. in 1973 the Nixon administration proposed that we end the use of tax shelters, the use of peddling artificial deductions for doctors and lawyers and other executives to shelter their ordinary income and wind up paying no taxes. It was done for two reasons: one, for equity; and the other, simply because this was a waste of valuable resources of the nation, capital that was needed for investment in economically sound areas and not in areas that were siphoning off capital simply because of the tax benefits. Secondly, an attempt, at strengthening the minimum tax on the use of tax preferences, so that everyone pays at least something to the government -- their fair share. And then an effort to trim back some of the tax advantages for the multi- national corporations and the multi-national exporters.

The House passed modest reforms in those areas that would accomplish most of those goals. I would say that the Senate bill as it stands now has done nothing its the to:: shelter area; it has made some cosmetic changes, but essentially tax shelters will continue to flourish. The minimum tax is much weaker than in the House version; ironically, the one group of people that will still pay no taxes at all under our present system are those people in the oil business.

LEHRER: Under the Senate bill that exists now.

BRANDON: That`s right. Finally, the Senate did not deal with the basic reforms in the area of ending the deferral on multinational corporations` overseas earnings. There are some good things in the bill, there`s no question about that; the question is whether or not it is worth it to the American taxpayer to foot the bill to continue the loopholes that are in the bill and the loopholes that have now been added on the Senate floor.

LEHRER: What about, say, for the average taxpayer? At the beginning, just a moment ago, I laid out several things., How would you characterize it just in terms of the average guy, in the income bracket of, say, ten to fifteen thousand dollars -- how does he come out in this Senate tax bill?

BRANDON: Basically, not that well over present law; the tax cut is already in place -- Congress has taken as a matter of national policy, I think, to continue that tax cut as a matter of stimulating the economy. That`s what the average taxpayer gets. What everyone else gets, in the bill, are the things that were lobbied through very intensely by the special interest groups, and a very ad hoc approach at tax relief -- one that those with the muscle received a greatest reduction in taxes than those without the muscle, and that`s always been the case in the legislative process in Congress.

LEHRER: What about the wealthy people -- how do they fare in the Senate bill?

BRANDON: They did quite well. First of all, the Senate significantly reduced the effect of the minimum tax by some half a billion dollars over the House bill; they essentially wiped out any attempt at dealing with tax shelters effectively -- the senate bill raises virtually no money in that area -- and they received a bonanza under the guise of a state tax relief. And I would strongly disagree with Senator Curtis that when we talk about giving $2 billion worth of tax relief to the wealthiest seven percent of the people in the country in the name of helping the average person, we are ignoring the fact that the average person -- that 93 percent of people`-- work all their lives and don`t even leave enough money to be taxed under the state tax; that we are not giving a fair shake to the American people. Someone`s got to make up that difference -that $2 billion.-- and it`s going to come out of your and my income taxes, or social security taxes or a larger deficit and inflation for, all of us.

LEHRER: Mr. Brandon, thank you. Eileen Shanahan is Washington correspondent for the New York Times. Her disclosures of many special interest provisions, including some that directly benefit-ed relatives of the Finance Committee Chairman, Russell Long, forced Long to reopen Committee hearings on this bill and about 20 of those narrowly drawn provisions were subsequently dropped. First of all, what were some of these "narrow provisions" that you came across?

EILEEN SHANAHAN: Well, the beneficiaries were all-over the lot; they included well-known corporate names like Mobil oil and Minneapolis Honeywell, and smallish companies most of us have never heard of -- the Arthur B. Levy Boat Company of Louisiana and a whole spectrum of mostly business organizations.

LEHRER: How did they get in this bill?

SHANAHAN: Basically, they got in because someone who had a tax problem sought a solution of the tax problem and approached a Senator, that he knew. I think it should be made clear that in disclosing these special interest provisions I and the New York Times were not necessarily taking the position that they were all bad, all wrong or all poor law. That isn`t the case. Some of them indeed do rectify unintended hardships that are accidents of drafting of earlier tax bills. I think the thing that we in the press wanted to disclose, however, and expose was the secret process by which they take place. It hasn`t been possible, even though we have, theoretically, open hearings and open mark-up sessions where they all actually write the bill in the Senate Finance Committee -- it isn`t possible to know who has actually sponsored these things. We picked about eleven narrow interest provisions and managed to find out who sponsored them.. No transcript is taken; the committee hearings are open but you can`t hear in that room; they don`t have adequate microphones -- this sounds trivial, but it`s anything but trivial ;-- the staff of the Finance Committee, when some of us from the press protested and asked if we couldn`t get an adequate microphone system in the Finance Committee room, said that Senator Long, the Chairman, had requested it but the Senate Sergeant-at-Arms wouldn`t give it to him; and I don`t believe that. I don`t think any Committee chairman is going to get rebuffed by a Congressional- Senatorial employee if he really meant it and made clear that he meant that he wanted an adequate audio system in that hearing room so that the press and the public could hear what was going on. The whole procedure by which they do this flouts the Congressional intention,` the change in the Senate rules a couple of years ago of making this process public.

LEHRER: We want to pursue some of these in just a moment, but before we do, what is your opinion of, the finished product at this point?

SHANAHAN : I think you have to go to.-the really controversial question, what is tax reform? I think most of the public, when you say tax reform, means a change in the tax laws that will require the wealthy and businesses to pay relatively more and the middle class to pay relatively less. On-- that basis, this is no tax reform bill. On the other hand, a conservative would argue that some of the most important reforms we need might be those that would tax investment more lightly. The conservatives argue that this is needed for a growing economy; by that test, this bill may represent some progress although I think probably not, because the revenue, giveaways in it are not the kind that really are an investment incentive; they really do represent favoritism for individual companies, industries and occasionally individuals.

LEHRER: I noticed a story by John Pearson, I believe it was, in the Wall Street Journal, and he made the point that even for conservatives this would not be considered a reform bill, that the kinds of general, broad things that a conservative would want are not included in this bill.

Let`s open it up to all three. Senator, you`ve got a lot of things that have been brought up here.

CURTIS: I must disagree with what`s been said here. This indictment of the Finance Committee, that a company that has muscle goes to a member and they get a special tax privilege -- not a word of truth in that. That isn`t the way it works. The House will pass a bill; as the ranking minority member, and I`m sure the Chairman should do this, too, I listen to every taxpayer, every industry, every group that I possibly can. I ask them to leave a memorandum with me. If it sounds reasonable that it ought to be called up before the Committee, I submit it to the staff, a staff of professionals -- not crooks, they`re professionals -- and if they approve it then I agree to call it up. I may be an advocate if it`s of my state, but otherwise I agree to call it up. And they vote on it. Every session is a public session; there hasn`t been one single meeting ahead of time to discuss what we might do. Now, there`s a big difference in people`s economic views. There are some of us believes that if we`re going to have jobs in this country we need more capital, and where are you going to get capital if you take it all in taxes? These good things in the bill that affects everyone that they can see are agreed upon.

LEHRER: And these go to basic philosophical differences, you`re saying -- from an economic standpoint.

CURTIS: That is correct. Bliss Shanahan wrote an article in the New York Times putting me in a very bad light; that we changed the effective date on one section of the-bill -- purposely, the implication, to give an advantage to someone. Well, here are the facts: the House Ways and Means acted a certain day; they never announced it, never any staff memorandum, never an official release or anything else until nine days later. When they sent the bill over, they had the effective date the date they took action rather than the date they announced it. The Senate Finance Committee made that retroactive for two years -- a little over two years, but we didn`t go back and move it back the nine days because no one knew about it. If someone had read every paper in the country, subscribed to every tax service, they wouldn`t have known about it. The reason I offered to call that amendment up in the Committee was for two reasons: one, the staff said it was sound and right -- good law to do so; the other one was that I didn`t want them treating my constituents that way.

SHANAHAN: Those are not your constituents, Senator.

CURTIS: No, but I treat other people the way I would my own constituents. And here`s another thing: it didn`t make a nickel`s worth of. difference to the Treasury. What was at stake teas whether the tax in a given situation be paid by the grantor or the beneficiaries. And it was right and fair, not crooked.

LEHRER: The details of that particular case I`m not familiar with, but I`m more concerned here about procedures.

BRANDON: Let me say here that in terms of those procedures we in fact didn`t object to the specific thing that the Senator is talking about because it was brought out in the open. The procedure involved in this whole area has been defective, and it is not true that these get the kind of scrutiny from the staff as one right think. The staff is under Senator Long. And it also is` not true that meetings are not held beforehand; I know that the staff meets with Senator Long before each day, and it is Senator Long that knows exactly what he wants to bring up that day and other members of the committee do not have an opportunity to know what is going to be brought up or even the basic content of what is going to be discussed.

LEHRER: Alright, let`s talk a few blunt subjects here. Senator Long is not here; Senator Lang was invited to appear and declined this afternoon, but the word is that Senator Long runs the Senate Finance Committee with an iron hand -- what Senator Long wants, Senator Long gets. Is that correct?

CURTIS: No man can do that. At all. Any chairman has a great deal of power, but it only lasts, as long as he can justify his case. Now Senator Long, as Chairman of the Finance Committee, has consider able poorer. He doesn`t abuse it. I don`t know why he isn`t here tonight, but I don`t think any inference should be drawn from that.

LEHRER: I just wanted to make sure that before we started talking about him that everybody understood that he did decline.

CURTIS: The provision that had `a possible effect on some of his family was advocated by many people; it affected hundreds and probably thousands. When the staff and everyone else considered it, Senator Long never thought of his family; he actually had an amendment. drawn that makes it impossible for his family, years after he is dead and gone, to take advantage of this, and many of us doubt whether he should have done that.

LEHRER: That`s probably got to be one of the most narrowly drawn amendments in the history of the Congress, isn`t it?

CURTIS: The one that took benefits away.

LEHRER: Yes, that`s what I mean. The one that took the benefits away -- what is the wording on that, if somebody was born...?

SHANAHAN: Yes, the amendment that we`re talking about, the original amendment, had to do with preserving the depletion allowance on royalties from oil drilling that flow through trusts. Senator Long`s family has the most incredible proliferation of trust agreements -- we found 18, we know there are many more (this in itself, by the way, is very aggressive tax "saving" to fragment the trusts and have each child have one by himself with each other sibling, with all the other siblings) -- that`s the way the Long-family has set up the-income for the oil fortune that Huey Long`s heirs are enjoying. And the original provision in the bill,-sponsored by Senator Dole, not Senator Long, as the New York Times story made clear, said that accidentally the 1975 partial repeal of the depletion allowance would have stopped the use of the depletion allowance on oil royalty money that was flowing through trusts in a couple of different ways that are complicated. When we exposed the fact that this would mean a benefit of hundreds of thousands of dollars, and possibly millions, to Long`s children, his nieces and nephews and his grand-nieces and grand-nephews, Senator Long said, as Senator Curtis just said, that he hadn`t known that it would benefit him. That is possible; it`s also a little hard to believe, however, when you`re aware of how many trusts there are, how they are continually changed and updated -- I tend to be of the opinion that Senator Long couldn`t have heard the words "oil royalties" and "trusts" in the same sentence and not known it affected his family. In any event, Senator Dole says he never talked to Senator Long about it, and I`m certainly willing to believe that. But when it was exposed Senator Long was very anxious to avoid the impression that he was personally trying to profit from tax legislation, and so he instructed the staff to draft something that would say no kin of his would benefit. And as Senator Curtis said, many people -- I would include myself in that number -- think that`s wrong; even if it`s good law or it`s bad law, his relatives either ought to benefit or they shouldn`t.

But let me just finish and tell you how it was drawn. The way it was written up was that no descendant of a person who died in the last six days of May 1970, which is when Rose McDonald Lang, Russell Long`s mother, died; no person who died in those six days who had set up trusts for their family could benefit from this provision. It`s kind of the ultimate what Senator Kennedy calls "one eyed bearded man with a limp" provision, that is drawn just for one person.

CURTIS: But I must say something there. Suppose they drew it later and it took something away that other people were entitled to? To this day, no one has challenged the basic amendment. It was right, it was needed. Now, we aren`t here to debate Russell Long -- he can take care of himself. But I do not think that on a nation-wide television show that charges should be made about how many trust accounts and how many arrangements a particular family has, without any production of evidence of it, without them being there to. defend. . .

SHANAHAN: He had his opportunity to be here...

CURTIS: That`s inferring that he ran away from...

SHANAHAN: ...and canceled out at 3:15 this afternoon.

CURTIS: But the fact remains that we were invited here not to defend Russell Long but to debate this tax bill, and to me it t shows a lack of substance on the part of the argument of those who have different economic views. I don`t challenge their honesty.

LEHRER: Senator, we`ll get the Long question cleared up quickly and we`ll move on. Everything about the trust thing has already been in the public print everywhere; there`s no revelation to what Eileen Shanahan has said.

CURTIS: Does that mean the public have been informed?

LEHRER: I don`t know.

CURTIS: She wrote many of them.

LEHRER: Right, but there`s nothing new there, and there`s nothing that Senator Long has challenged there and he was the first one to correct it, and that`s aside. My question had to do with the procedure, and let`s get into the procedures of how these little null bills got into this. bill in the first place. There were 73 of them to begin with, isn`t that correct?

BRANDON: Jim, let me say that I would again disagree with the Senator that these are simply a matter of "good law." Of those 73 provisions the Treasury Department objected to the passage of about half of them. We objected to slightly less than that -- we are slightly less purist than the Treasury is in terms of good tax law. But I think that`s very important. The fact is that some of these things that are good should be passed but should withstand the light of day, public scrutiny, much greater hearing. Senator Curtis can say that they received careful attention, but they were passed -- some 50 of them -- in one afternoon in the Senate Finance Committee, and the staff is unfortunately not able to object strongly to, provisions that certain members of the Committee want to see enacted.

LEHRER: Did you feel that you had full information on all 73 of these amendments that went through that day?

CURTIS: That big a bill with other legislation pending. It took six weeks to pass it. First we were challenged in our jurisdiction by senator Muskie, and then Senator Kennedy, for weeks and weeks, offered amendments after amendments; some of them he got six votes, some of them he got more -- a few of them he passed. But it was a massive work and everybody had to rush. Before I ever ask the staff what they think of something, I would submit it to them and tell them that at the proper time I`ll call this up and ask you what you think about it.

LEHRER: I hate to do this, but we are out of time. Thank you very much, Senator. Miss Shanahan. Mr. Brandon. I`m Jim Lehrer and we`ll see you tomorrow night. Thank you and goodnight.

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