Poor, rich are biggest winners in tax plan
President Reagan's tax plan is designed to attract wide public and political support. Yet among individual taxpayers there will be clear losers as well as winners, if the reform plan clears Congress.Skip to next paragraph
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The plan would cut taxes for 3 out of 5 American families. Bigger tax bills would go to 1 out of 5 households, while the remaining one-fifth of American families would owe the same amount to Uncle Sam.
But everyone would not share equally in the reductions.
The biggest tax cuts, on a percentage basis, go to low- and highest-income families. Middle- and upper-income families, with incomes from $20,000 to $200,000, get the smallest tax cuts, even though their political support for the program will be essential.
The tax cuts for individuals would be financed by increasing the tax bite on business. To trim overall individual tax payments in fiscal 1990 by 5 percent, the President's plan would raise corporate taxes that year by 23 percent compared with the current tax law.
Overall the program is designed to produce as much revenue for the Treasury as the current tax code. But Treasury estimates show that as the plan is phased in, it will bring in $1 billion to $7 billion less than the current code between fiscal 1988 and 1990.
Mr. Reagan unveiled the program in a televised address Tuesday evening. In a 461-page book issued Wednesday spelling out program details, he described his reform effort as a ``historic challenge: to change our present tax system into a model of fairness, simplicity, efficiency, and compassion, to remove the obstacles to growth, and unlock the door to a future of unparalleled innovation and achievement.''
To meet those goals, the administration has proposed what Treasury Secretary James A. Baker III calls the most comprehensive tax-reform effort ever undertaken. The sweeping changes will affect the finances of virtually every individual and family.
Tax experts say Reagan has hit a double, but not a home run, in the reform program he is sending to Congress.
The package backs away from some of the more controversial provisions of the draft tax-reform plan the Treasury Department issued last November.
Among other things, the revised plan retains tax breaks for the oil industry, charities, and employee benefits, while sweetening the already favorable treatment of capital gains on the sale of stocks and bonds.
``I am quite positive about it,'' says Alice M. Rivlin, director of economic studies at the Brookings Institution and former director of the Congressional Budget Office. ``It could have gone further, but it is a big plus to have gone as far as it went.''
The plan takes a big step toward simplification and toward lowering rates and broadening the base of income subject to taxation, she says.
The White House says it is ``reasonable to expect improved economic performance as a result of the President's tax proposals.''
The White House says that with his tax plan in effect, real economic output would be at least 1.5 percent higher in 1995 than under current law.