Tax Reduction Act of 1975

(Senate agreed to conference report, roll call #117 (45-16))

Tax Reduction Act - =Title I: Refund of 1974 Individual Income Taxes= - Provides under the Internal Revenue Code that each individual shall be treated as having made a payment against his payable income tax for his first taxable year beginning in 1974 in an amount equal to 10 percent of the amount of his income tax liability for such taxable year. Limits such payment to a maximum of $200 and a minimum of $100 (or the amount of his tax liability), to be phased down as adjusted gross income rises from $29,000 to $30,000.

Prohibits such payments from being taken into account as income or receipts for purposes of determining the eligibility of such individual or any other individual for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal program or any State or local program financed in whole or in part with Federal funds.

=Title II: Reductions in Individual Income Taxes= - Provides that the low income allowance is $1,900 in the case of a joint return and for a surviving spouse, $1,600 in the case of a single person, and $1,250 for a married individual filing a separate return. Increases the percentage standard deduction from 15 percent of adjusted gross income with a maximum of $2,000 to 16 percent with a maximum of $2,300 for single persons and $2,600 for joint returns.

Provides for a tax credit, in addition to the personal exemption, of $30 for each taxpayer, spouse, and dependent.

Allows a credit of 10 percent of earned income that does not exceed $4,000. Reduces such credit by an amount equal to 10 percent of so much of the adjusted gross income as exceeds $4,000.

Provides for an increase in the maximum adjusted gross income level from $18,000 to $35,000 before the phaseout limit on deductible expenditures begins to operate.

Provides an extension of the time period, from one year to 18 months, in which a taxpayer may purchase a subsequent principal residence and thereby defer gain.

Provides a tax credit of 5 percent of purchase price, up to $2,000, for the purchase or construction of homes used as new principal residences (including condominiums, cooperative housing and mobile homes) where the property is acquired and occupied after March 12, 1975, and before January 1, 1977, the construction of which by the taxpayer commences before March 26, 1975, or in the case of property not constructed, acquired by the taxpayer under a binding contract entered into before January 1, 1976.

=Title III: Certain Changes in Business Taxes= - Provides for a 10-percent investment credit for all taxpayers (including public utilities) for property acquired and placed in service after January 21, 1975, and before January 1, 1977. Provides that in the case of property acquired after December 31, 1976, the 7-percent investment credit (or 4 percent for public utility property) provided under present law is to apply; and that in the case of constructed property, the 10-percent credit is to apply to the portion of the basis attributable to construction occurring after January 21, 1975, and before January 1, 1977.

Allows a corporate taxpayer to elect an 11-percent credit with respect to qualified investment for the period beginning January 22, 1975, and ending December 31, 1976, if an amount equal to one percent of the qualified investment is contributed to an employee stock ownership plan.

Requires the entire contribution to be transferred to the plan at one time. Provides that participants are to be immediately vested in the full amount of such contributions, as soon as the contributions are allocated to their accounts. Disallows distributions of such contributions for 7 years.

Deletes the $100,000,000 limitation on the increase in the investment credit attributable to the rate change that could be claimed by any one public utility.

States that for public utilities the limitation on the amount of tax liability that may be offset by the investment credit in a year is increased from 50 percent to 100 percent for a two-year period and then is systematically reduced to 50 percent over five years.

Provides, with respect to the limitation on qualified investment in used property, an increase to $100,000 from $50,000 for taxable years beginning after December 31, 1974, and before January 1, 1977.

Provides that in the case of long lead time property (property that requires at least 2 years to construct) the investment tax credit is to be available to the extent that progress payments are made during the construction period.

Increases the corporate surtax exemption from $25,000 to $50,000 for 1975. Provides a reduction for 1975 in the corporate normal tax rate from 22 percent to 20 percent on the first $25,000 of net income.

Increases the accumulated earnings credit from $100,000 to $150,000.

=Title IV: Changes Affecting Individuals and Businesses= - Provides that the present tax credit of 20 percent of wages paid to employees hired under the Work Incentive Program is to be available until July 1, 1976, with respect to the hiring of former welfare recipients, by both business and non-business employers. Disallows such credit for any person who has displaced an individual from employment and for migrant workers. States that for non-business employers, there is a limit of $1,000 per individual so employed each year.

=Title V: Percentage Depletion= - Eliminates the deduction for percentage depletion with respect to oil and gas produced on or after January 1, 1975, with qualified exceptions for natural gas sales and gas sold in interstate commerce on which prices cannot be increased, and for geothermal steam.

Sets the percentage depletion at 22 percent for the small independent producer to the extent that his average daily production of oil does not exceed 2,000 barrels a day, or his average daily production of natural gas does not exceed 12,000,000 cubic feet, by averaging his total production over the entire taxable year to arrive at an average daily figure, regardless of when the production might actually have occurred.

Reduces the exemption to 200 barrels a year for 5 years from 1976 through 1980, when the permanent exemption of 1,000 barrels per day will be reached. Phases down depletion rate for oil and gas covered under the samll producer exemption from 22 percent. Permits a taxpayer to take percentage depletion, at a 22 percent rate, on all production resulting from secondary or tertiary recovery methods until 1984 (but not in excess of 1,000 barrels per day).

Requires the 2,000 barrel (12,000,000 cubic feet) exemption to be allocated (1) among the corporations which are members of the same controlled group of corporations; (2) among corporation trusts and estates if 50 percent of the beneficial interest is owned by the same or related persons; and (3) among the taxpayer and his spouse and minor children.

Disallows the small producer exemption with respect to any oil or gas property transferred after December 31, 1974, if the principal value of the property has been demonstrated before the transfer, with specified exceptions.

Disallows the exemptions to any producer owning or controlling a retail outlet for the sale of oil or natural gas or petroleum products, or for a producer who refines more than 50,000 barrels of oil on any one day of the taxable year.

States that the deduction from the small producer exemption may not exceed 65 percent of the taxpayer's net income from all sources.

=Title VI: Taxation of Foreign Oil and Gas and Other Foreign Income= - Limits the amounts of payments in the form of foreign taxes on foreign oil extraction income which will be treated as creditable taxes to 52.8 percent of taxable income from foreign oil extraction in taxable years ending in 1975, 50.4 percent of such taxable income in 1976, and 50 percent of such taxable income in subsequent taxable years. Provides that taxes paid in excess of that amount are to be disregarded and not allowed as a deduction.

States that any payments to a foreign country in connection with the purchase and sale of oil or gas extracted in that country are not to be considered as a tax if the taxpayer has no economic interest in the oil or gas and either such purchase or such sale is made at a price other than the fair market price of such oil or gas at the time of such purchase or sale.

Provides that beginning in 1976 the per country limitation on creditable foreign taxes is not to apply to foreign oil-related income.

Repeals the minimum distribution exception under present law which permits a deferral of U.S. taxation in cases where the foreign corporation (or various combinations of foreign-related corporations) distributes specified minimum dividends to their U.S. shareholders, with the exception of agricultural commodities not produced in commercially marketable quantities in the United States.

Repeals the exception which presently permits a deferral of taxation in cases in which such foreign subsidiary income is reinvested in less-developed countries.

Repeals the rule of present law which permits a deferral of U.S. tax for shipping income received by a foreign subsidiary of a U.S. corporation, but continues such deferral of tax to the extent that the profits of these corporations are reinvested in shipping operations.

Denies the benefits provided for domestic international sales corporations (DISC's) for the export of natural resources and energy products (products for which an allowance for cost depletion is provided) and for products subject to export control under the Export Administration Act of 1969.

Denies the investment tax credit for foreign situs drilling rigs used outside of the northern half of the Western Hemisphere, and placed in service after March 18.

=Title VII: Miscellaneous Provisions= - Extends the benefits of the Emergency Unemployment Compensation Act of 1974 for an additional 13 weeks to those who have exhausted 52 weeks of benefits, available only for the period ending June 30, 1975.

Allows a $50 payment to each individual who for the month of March, 1975, was entitled to: (1) a monthly insurance benefit payable under title II of the Social Security Act; (2) a monthly annuity or pension payment under the Railroad Retirement Act of 1935, the Railroad Retirement Act of 1937, or the Railroad Retirement Act of 1974, or (3) a benefit under the supplemental security income benefits program established by title XVI (Grants to the States for the Aged, Blind, and Disabled) of the Social Security Act; except that, (A) such $50 payment shall be made only to individuals who were paid a benefit for March 1975 in a check issued no later than August 31, 1975; (B) no such $50 payment shall be made to any individual who is not a resident of the United States.