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foundation for your tax credits for the elderly.

His preliminary conclusions are right down the line.

He will tell you that their final report won't be ready until December.

I don't think if I were you I would indicate to him that you plan to go early with anything.

to what he has to report, which I think you'll see.

We'll say that property tax is bad, but it's particularly bad for the elderly.

And there is a way of doing this.

It's tax credits.

We're working on a total revamp of the relationship of taxes.

No, he will say that to you.

That's what they're doing.

And you can sit and listen to him and just say, if I understand correctly, what you're really going to propose eventually is a comprehensive realignment of the relationship between federal, state, and local taxation.

And that is really what's coming out of this.

They're doing a damn interesting piece of work.

And so he'll say, yes, and you say, keep up the good work.

And I don't want you to hurry this on account of the election.

I don't think there's any need for it politically or for any other reason.

At the same time, we're going to reserve all of our prerogatives and just send him on his way.

It's the nature of an interim report.

But it's taking a very interesting balance.

uh principal finding the property tax load carried by elderly householders appeared so heavy as to constitute a national scandal that's the finding of the acir

Yeah.

But you know, it's because of John, there's some trying to create an issue.

I don't think he can stop the tax cutting.

Now, one thing you've got to get Langer off of, though, he must not talk loosely about the tax cuts.

And if it's about attempting another tax cut, the cat doesn't know his ass from his face up.

I don't think he, Schultz did that.

I don't think Weinberg did that.

Schultz, you know, on his cross-examination of the committee, left the door open to defense cuts.

Well, the defense cuts, that's something we'll make.

He cannot get into any kind of numbers or anything like that.

I mean, I, if he takes the pressure, what's going to happen?

He should sit out on a conference.

Well, Weinberger's been pretty good about it.

Weinberger and Laird and I have all been talking about this.

You understand the problem there?

Yeah, I want to give the defense issue away.

Absolutely.

Goddamn, he talks about it.

We can't talk about it.

Right.

If you ever get this again, you can say, no, that's not.

Sure.

Yes.

We all get that.

The only little crack that we've had, we showed some part of the way we submitted here a while back.

So we covered that, I think.

Oh, no, no, no, no.

He didn't use any numbers.

He just admitted the possibility that there could be cuts.

And we're always hard-line.

But Cap was up there the next day.

He got us back in shape.

Oh, sure, sure.

We don't talk about the number of carriers.

It's the procedures.

Well, I think he's clean on his nose, and when Cap was up there the next day- All right, how are you?

I'm fine, how are you?

Nice to see you.

I just wanted to show you .

the results of our study today, Mr. President, one volume on school financing, one on the property tax, and a very supplementary series of studies, which I confess I have not yet waded through on various aspects of the process.

We have about 32 people.

How many have been asked?

Largely congressional appropriations, but we also...

He had a small contribution from most of the states.

Do you think you have an adage, Jack?

I mean, what I meant is, I don't mean numbers, but how do you feel about the pressure of voting?

You watch him carefully yourself.

The one thing I've always thought about these groups is that Zachary does the work, and I'm a tough guy, of course, but you've been around government enough.

I'm not going to let that happen to you.

In this sense, you're making decisions.

Yeah, sure.

You've got to stake it all in them.

So what we do is we have trained the staff to dialogue with themselves.

They now identify all of the positions in different colored pieces of paper so that they make it quite clear they're arguing.

Both sides of the

of every issue, and we require that they make, you know, recommendations.

Get on, it's all in alternative forms.

How to proceed, I don't know.

I noticed you didn't mention the domestic council.

Did you ever get our money?

We have some money from you, and we have some from HUD and HCW, and once from the Department of Transportation for Special Studies.

And we get a little money from some of the cities, not much, though.

It's on the foundations.

So that's a combination of things.

Well, John, why don't you tell them what's up?

Well, I'd like to just, for our purposes, very briefly, Mr. President, tell you where we're now at.

We decided to organize the study in three phases because it's so complicated.

and what the implications of the court decisions that have been made today might be, and how the federal government, if it were to be involved, would it be to involve itself?

Secondly, and this we've just completed, we've taken a very intensive look at the property tax and many of its ramifications.

I'd like to go back to that.

Thirdly, we're in the process of looking at the value-added tax, but we have not yet had the studies on it.

And we'll not have our meeting on the value-added tax until after the election in December.

And we're going to try to pull all these three components together.

I think, Mr. President, I put together some of the highlights of this.

First of all, I think the conclusion we draw, Mr. President, is that whatever recommendations

what I like to call national fiscal policy.

We've got to look at the impact of not only federal taxes on people, but state local taxes, which are now in that chart.

In the case, do you pass approaching the level of the federal tax?

On the second chart, Mr. President,

And compared to the 1953 tax burden with the 1972 tax burden we used, that's total income.

The comparable figure from 53 to 72, which is 5,053, is 12,072.

The starting point is the percentage of their income that's going to taxes is going up because you receive less than 12% or 20%.

And if you've broken out the comparables, what you see is the income tax, the federal income tax, which is made very costly.

Social Security taxes are almost like Google.

And property taxes are a lot less.

The state income taxes and sales taxes are now almost coming abreast.

Part 5 and 5 and 12 are not comparable.

In other words, 5 would have been approximately the median income of 53 and 12.

Yes, that's right.

But what this leads us to conclude, Mr. President,

income tax reform or what have you, we have to look at the total package now.

Somehow or other, we have to develop a mechanism to enable us to do this, because Congress generally just looks at federal income tax and its importance.

And we're going to, I'm sure, recommend that there be developed some mechanism to involve what I have referred to as a national fiscal policy, where

Maybe our own condition will affect what you've asked us to do.

It's forcing us to think alternatively.

I do see these studies are so tremendously illuminating.

You couldn't get all your people together.

That's my guess.

who, like you, are presenting yourselves to the public.

Turn it to the specific areas.

preliminary thinking on school financing, and that is that if you look at school financing problems simply on its own, I think we would, and without reference to the courts, we would say that the states would handle the matter themselves.

I'm not talking now about property tax and ways to get a leave for land.

This is simply talking about the court decision saying that property tax is not the right financing means.

But I think we will probably end up recommending perhaps a modest program of federal aid or state school finance reform to stimulate them to get going as really as what the McElroy Commission was

talking about, but with some kind of a self-instruct mechanism so that as dollars come into the local communities from revenue sharing and possibly from welfare, if that is ever agreed upon, that this school financing assistance program would phase out.

I gather ACIR is biased in favor of federal takeover of welfare.

Yes, John, that's one of the things that

Just the staff bias, primarily.

Is that because of the governors and all the stuff that's around there?

The governors and mayors, in particular, who see these rather substantial bites going out or something, or which they have absolutely no control.

And this is where virtue really is not rewarded, because if you do a good job of making better payments, then you

The next, Mr. President, is just a quick summary of our preliminary look at the property tax and the problems that are confronted by it.

First of all, the obvious that it is by far and away the most popular of all taxes.

We had quite a discussion with the LFC, but it's very hard.

There's no question about it, and we did a public opinion poll which confirmed that it

strikingly.

Part of it, of course, is its visibility.

You pay it in one or two hours.

Well, that really wasn't a poll.

That was a Johnny Rhodes platform committee campus of selected Republicans.

And you ran into sort of the Roger Freeman syndrome, I think, with you.

Is that what it was?

Yeah.

You know, Milt Friedman and Roger Friedman and some of these fellows say it's probably tax-admitted tax.

And I'm sure from a theoretical standpoint that's so, and they got into a heavy vein of people who believe that one.

But it was not a poll.

It's your poll.

Your poll, Bob indicated that if you look at page three, Mr. President, obviously some people...

Twenty-five percent of the people listed as the least fair tax in local property tax.

The next figure is the percent that... We keep talking about the visibility of that.

I've heard you say that before.

Do you have any figures or any figures as to what percentage of people actually pay their property tax in two divides a year as opposed to having it made as a part of their mortgage payments?

No, we haven't.

That would be an interesting thing to find out, I think, to see.

It's interesting that they go for the sales tax.

I mean, it's true in many, many states, the numbers have beaten the hell out of several governors.

The rest of the sales tax is considered to be as equitable as the income tax.

That's right.

It's a very strange, and it's quite a turnaround.

I just didn't know what I was doing.

The problem with the property tax reform or reduction is that it lies in several things.

First of all, there's a wide variation that's in its use.

It just shows that looking at it either from an income or a value standpoint, you get a wide variation in property tax.

It's heavy in the Northeast and in the Midwest and in the West, very light in the South and the Southwest.

Northeast, Midwest, and West.

Yeah.

you get a tremendous variation in its use, which, when you talk about relief, poses varying problems in varying parts of the country.

That's one of the difficulties.

The second difficulty is that a number of state constitutions make it extremely difficult, if not impossible, to classify property.

And therefore, if you were to examine residential property, for example,

He'd have to have a constitutional amendment, and maybe he's, well, at least 16 states, and maybe he has 24, so that you've got an actual constitutional problem of presenting one class of property.

A third problem is that

unless you actually require, as a condition of property tax, you really require that the tax rate actually be cut.

The indications in some of the states that have tried it at the state level is that the local government's quickly upped the tax rate, and you're right back where you started from.

Now, the thought of trying to mandate through the Congress tax rates

10,000 taxing districts or whatever, it would be a nightmare, frankly.

So we've been wrestling with how you get a handle on this property, very frankly.

But we're not totally certain.

We see the way there are two things, however, that are beginning to emerge.

One is that you now do have a form of property tax relief

deductions which people are allowed for their tax payment on their federal income tax.

But our studies show this is really one of the root holes that your comment likes to talk about.

This is one he's forgotten about because actually the people who itemize their deductions are the higher income people and most of the middle and lower income families take a standard deduction.

So that actually what you're getting is a disproportionate help to those who need it the least with the deduction method.

We're looking at the whole possibility of tax credits, as distasteful as I know this is.

I don't know if I've ever used it.

If I ever had to have tax credits for this education, or for any kind of education.

I would think that the commission may very well come up with the idea of tax cuts, not just for the property tax, but for all state and local taxes, and it provides a mechanism for compensation.

between federal and state and local taxes, which is pretty good.

Now, the problem is you're talking about a big bite of money.

Maybe the goals.

Well, yeah.

If you took a 50% credit, for example, on all state and local taxes, I think the figure that they come up with is that it would cost about $12 or $13 billion.

So that is a very big bite.

Now, if you took a 25% credit, you're down to maybe $6 billion.

That's still a lot of money.

What are you talking about?

The other area, Mr. President, that we have identified as really a serious one is the

question of the elderly property tax.

And this is one that you might want to consider fairly early in the game.

There are now, Mr. President, this shows that there are over a million

Now, these are just owner-occupied single-family houses, but just in that category alone, there are over one million elderly families who earn total family income less than $2,000 a year without suspension and Social Security and what have you, less than $2,000.

Yeah.

And who pay, on the national average, nearly 16% of their total income for property tax.

Let's get that number down.

Two million.

How many?

We have 2,000 less than the goddamn welfare people get.

That is really the truth.

I mean, when you talk about the last scheme of government, which provides 4,000 for welfare, not for the work report, it doesn't even address the systems.

It means you can get $4,000 for every family and four on welfare.

And here are a million older Americans earning $2,000 or less who are paying taxes to help those places where they live.

They're paying property tax, I'm so sure.

Huh?

They're paying property tax.

The welfare recipients are?

No, these folks.

Hell, they are.

We cut them out of income tax.

I know, I know.

Property tax takes 14% of their income.

15, 16, almost 16.

Well, this is the real question.

And in the Northeast, Mr. President, if you... Where they are.

Almost 30% of the, on the average, almost 30% of those people's income goes to property tax, let alone...

This is also total income, isn't it?

It's total income, no, no, no.

But in reality, it's the people like Vermont and Jefferson.

We're on Social Security.

Well, there's a hell of a lot of older people there, too.

And the number of people in the...

And incidentally, isn't it true that now, indeed, the number of older people in the Northeast is even greater than in Florida and California?

I'm curious.

I think that's true.

What does the last column mean, Bob?

Percentage distribution?

People in Florida and California, particularly Florida, the people who go down there and retire are a little better off.

The people that live in the Northeast are poor folks.

Poor old folks.

I think that's true.

Then there's another billion that earn less than between $2,000 and $3,000.

And they're paying almost 10% of their taxes.

Let me, what I would like to see is to see if people will take it for, take it up to $4,000.

And let's see this next study on the old books.

I'd like to see a piece of paper on that.

I'd like to see a piece of paper with me.

And this next study.

So 15 states and now Illinois, 15, have enacted what they call circuit breaker legislation, meaning that this is designed to have the state take over the payments, in fact, of these property taxes of low-income elderly families.

They do it in a variety of ways, sometimes as a refund, and sometimes as an advance payment from the state to the local tax advice, so the local body doesn't lose the taxes.

But the taxes are paid by the state for the individual, if you will, or on behalf of the individual.

And in Minnesota, for example, this is how this so-called circuit breaker concept has worked.

And what you see is that the low-income family, the senior family, has 95% of his tax abated.

As he gets up to the $4,700 to $5,000 range, only 5% is abated.

And then it phases out.

So your figure of $4,000 was very close to what they're using.

They go up to $5,000.

But some of the states have gone to $4,000 and some

Now we, I feel, Mr. President, that there could well be recommended, even now, were you so inclined, a concept in which there would be a federal circuit breaker plan, rather than

plan the state program, we would suggest that the federal government could match the states which had circuit breaker property tax relief for the elderly on a 50-50 basis, let's say.

And if you assume roughly a $4,200 income cutoff or somewhere in that level,

And the cost would be about $600 million.

The federal cost would be about $600 million a year.

But you're really providing relief for those who are suffering the most.

I mean, this would go to the states, or it would go to the individuals.

You talk about a tax credit.

This would not be a tax credit, Mr. President.

This is a loss of space for the tax credit.

This allows the states to actually make a tax payment, either directly to the local taxing body or to the individual who has paid the taxes.

The old-timer goes down to an office, he signs up, and then he pays a certain portion of his tax, and the state pays the rest, is the way that works.

Is that right, Bob?

Well, that's one way to get it.

I think the usual system is the old person files an affidavit with the income tax people.

It doesn't go through welfare, Mr. President.

This is done all through the income tax departments.

He files an affidavit that he has an income of under $4,200, let's say.

he gives him a receipt for his property tax payment, which was $200, let's say.

And the state income tax department sends him a check for the $200.

That's one way.

Or the other way is he files, he sends the tax bill to the state income tax, and they actually send the money directly to the local tax department and go either way.

But in no way is he identified as a welter.

This is

And what about this?

There's also another way to do this.

You don't have to have a social worker.

Another way to do it is just to give a straight-up tax credit.

There's a lot of reasons the president won't be filing income taxes.

Or they'll take us.

You would have to send them a cash rebate.

Well, that's done anyway.

Yeah, yeah.

Well, he would in this case to get his rebate.

Suppose he earns $2,000.

Right.

And pays the property tax.

Right.

All right, how do you take care of him?

He files short form.

with the Federal Internal Revenue Service, or a federal tax credit, and he'd actually get a cash payment from the federal government.

That'd be one way to do it.

That's if you go to the total tax credit line.

That's done now.

For instance, if a Social Security recipient makes $1,100, and he has a certain amount of tax to impale, he files a short-form income tax return in order to get his withholding returned to him.

And he gets a check from the federal government.

because he didn't have to pay any tax.

So it's not a completely foreign procedure.

Your procedure has a problem that's a little impersonal.

What I meant is giving money to the state.

How does that guy out there, the older person, with the tax credit, he gets it directly.

How can you handle the circuit breaker thing so that the older person who receives it knows he's getting a direction from the federal government as a result of this action?

Well, he would be getting really under the proposal that I have drawn up here.

Half of it.

Got it.

Half of it.

Whatever the case, though.

Well, he gets checked.

Well, it would have to be from the state, yes.

But you don't know where it was coming from.

Don't take it any doubt about that.

Do you prefer the circuit breaker scheme to the tax credit scheme?

For the elderly?

For the district record, the elderly won't.

I would go with the circuit breaker route because it's very simple.

There have been enough states adopted now that

It's a known program, 15 of them.

It's very popular because of where it has been adopted.

And it doesn't get into all the arguments you're going to get into when somebody recommends tax cuts, and that's going to decide a major deal.

When that subject comes up, as I indicated, I think

in our opinion, eventually this is going to have to be done generally, you know, putting over taxes.

But... Well, I've seen that beginning to shape up.

I never like to predict what 26 diversions are going to do, but...

I think that's...

This, Mr. President, there are actually bills in Congress now.

Paul Finley has

in promoting this circuit breaker concept.

And although he's been talking about it nationally, you could have a direct payment by the federal government to the local, to the property taxpayer.

That's what his bill provides.

That's really what you were suggesting.

Our commission, which likes to see as many things as possible go through the state so that they're getting into the ballgame, if you will, would favor the joint approach.

But it could be done as a direct payment by the federal government to the other.

But this is such a, when you see these figures, it's such a startling fact that our staff boys said they thought this was a national scandal.

They actually used that word.

It is.

When I say have an income of $2,000 or less, how in hell do they live?

How in the name of God do those people live?

Of course, they've got Medicare.

They can hardly pay.

Well, a fellow can live pretty well on $2,000 in some parts of the South.

Well, no, these are the Northeast.

It is a scandal.

It's a damn scandal.

Particularly when you see these people on welfare.

I mean, let's face it.

Do these people get food stamps?

$2,000.

We're trying to find a lot of them to get them nutritional aids now.

Well, for God's sake, why don't we get food stamps for these people?

At least if that food stamp program isn't worth a goddamn.

Well, you well know.

Let's at least get them to the organization.

helping some of those people.

Let's give it to all of them and, you know, we've got these welfare executives that we used to buy booze.

Part of the problem here is a lot of these old folks won't go in and find that.

That's the trouble, you know.

That's the trouble.

Sure.

Well, they'll have to find another way.

Well, we're on that.

That's Project Find.

We're on that right now.

Bob, could I shift to the value added for just a minute so that you have a little feel of what we're up to?

There's been so much speculation about the value added that we're deliberately killing it to the extent that we can.

We don't want people to think they're going to get it because we're not that far down the road.

We may never have it.

That's it.

We want to leave it in a very, very uncertain conditional kind of state.

And so we've been throwing cold water all over it here.

As far as your group is concerned, they aren't certainly off the value-added text.

Well, let me tell you where my group is, and then I have my personal comments about me, Mr. President.

The Commission, I am sure, even after the election, is going to recommend against the value-added text.

That's all we need to know.

Right.

The majority of elected officials out there.

Right.

And they think of it as a sales caption.

Right.

I personally, Mr. President, and I hope that John has just suggested that your options are kept open because I think it can be made into a useful patent and that someday we may have to use it.

I don't know exactly when or for what purpose.

I don't know.

But I've gone into it sufficiently attached by myself on two things.

Number one, the regressive stinger.

And it really can be taken out.

And number two, we only, it's easy to administer.

I have to throw the law on that.

It's a problem.

How many special interest groups would want to try to get a zero base?

The railroads would be after Congress.

The banks would be after Congress.

The utilities and small farmers.

And if you get too many exemptions or too many different sets of rates, which some of the European countries have,

low rate uh tax applying to across the board why do they do this between

That leaves us in a position to say, we expect that recommendation to come in.

And so that we, because there's no reason to have a tax issue.

We have a situation where we have our opponents standing for at least $100 million in the budget.

And we're cutting the dam that never paid.

We're trying to avoid a tax that we don't want to follow the issue here.

We're trying to understand, look for a new tax.

So that's what I think we better, that's the way we want to leave it, is our view.

I'm not sure I don't compromise.

No, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I,

So I can state that.

In fact, all I'm trying to say is that I hope to see your options.

I understand.

I clearly understand.

Well, between now and December, when you complete your argument, I would like to have the Treasury do kind of a parallel track.

study of this work that you've done to date if you have no objections.

And then we may or may not pick up your suggestions depending on what sort of response we get out of the trigger.

It's elderly or some variation of that.

There's another information that's in the ballot

Well, we should have discussed it on the outside and obviously not till, not till

that's the place we've got the greatest so obvious and it's readily it's really it's right well sir we have been having this by way of some of the most intriguing set of discussions that I've had the full commission has been talking to me for months and

We're going to have a two-day meeting in December, two full days.

That's funny.

Trying to pump all this together so we'll have something for you by the first of the year.

Before you meet in December, I think it would be important that we have a question for you.

I think you can guide them a bit, you know, and they can guide you.

Yeah, sure.

There's no use in this throw-up beautiful report.

Yeah.

And Lou, Lou will say, Lou will say it with close touch, but we want you to know that we're, this is one question that we'll have some of that in the future.

I think, I appreciate what you're saying.

Oh, I get to do the tally today.

That's all you get.

Thank you very much.

I appreciate it.

Thank you.