ECONOMIC

The permanent changes in the Tax Reduction Act together with extensionof the temporary provisions in the Revenue Adjustment Act yielded a reductionof about $13.5 billion in personal taxes in 1976 from what they wouldhave been under 1974 law.Although the Administration had proposed that the personal and corporatetax reductions due to expire in mid-1976 be enlarged and made permanent,the Tax Reform Act ob 1976 merely extended the provisions of theRevenue Adjustment Act. In particular, the higher low-income allowanceand percentage standard deductions were made permanent; the personal taxcredits, the reduction in the tax rate on the first $25,000 of corporate income,and the increase in the corporate surtax exemption were extendedthrough calendar 1977; and the 10 percent investment tax credit was extendedthrough 1980. Thus the Tax Reform Act of 1976 did not produceany general tax cuts beyond those enacted at the end of 1975. Nor did itcontain any of the special tax incentives proposed by the Administration toencourage specific types of economic activity. The total of the tax reductionswas about $16 billion in 1976, compared with $18/ 2 billion in 1975.The Tax Reform Act of 1976 also made the first extensive changes in thetax code since 1969. These changes increased receipts by $0.6 billion in 1976and are expected to yield a $1.6-billion gain in 1977. Among the more importantmeasures enacted in the new law were unification of estate and gifttaxes, a narrowing of allowable deductions for tax sheltered losses, tighterrules on personal deductions and exclusions, an increase in the minimumtax, and an expansion of loss-carryover provisions. Numerous other revisionswere made in the tax law which modified existing tax preferences and addednew ones. Despite these changes the Tax Reform Act of 1976 did not achievefundamental reform or simplification of the tax code.The other tax legislation passed in 1976 was a temporary increase in theFederal unemployment insurance tax rate from 0.5 percent to 0.7 percentto become effective January 1, 1977. The amount of wages subject to thistax was also raised permanently from $4,200 per worker to $6,000 per worker,effective January 1, 1978. These measures are designed to replenish Stateunemployment insurance trust funds. The legislation also extended coverageunder the regular State unemployment compensation tax and benefit systemto about 9 million additional employees in State and local government andfarm and domestic workers, effective January 1, 1978. The Congress did notenact the Administration's proposed increase in the social security tax rateto 12.3 percent. Under current law, however, the rate will rise from 11.7percent to 12.1 percent on January 1, 1978, and the taxable wage base willrise $1,200 in both 1977 and 1978.Federal receipts increased by $44 billion to $331 billion in 1976, yielding aFederal tax share of nominal GNP of 19.5 percent. The strong economy,continued inflation, and the absence of the 1975 tax rebate were responsiblefor the large growth in receipts.75