Poor, rich are biggest winners in tax plan
(Page 2 of 2)
Mrs. Rivlin says the plan would be ``a plus for economic growth,'' because it removes some tax shelters which divert capital away from the most productive uses. But she cautions that it is ``more than can be asked'' to try to specify the precise size of any economic bonus from tax reform.Skip to next paragraph
Subscribe Today to the Monitor
The administration plan would affect individual income taxes by:
Cutting tax rates. Under the reform plan, there would be three brackets. On joint returns, taxable income less than $4,000 would not be taxed. Income from $4,000 to $29,000 would be taxed at a 15 percent rate. Income from $29,000 to $70,000 would be taxed at 25 percent. Income greater than $70,000 would be taxed at 35 percent. The rates would take effect July 1, 1986.
Under current law there are 14 rate brackets, from 11 to 50 percent.
Boosting personal exemptions. The amount deductible for each personal and dependent exemption would be boosted to $2,000 starting Jan. 1.
Under current law, these exemptions are expected to be $1,080 in 1986.
Increasing the standard deduction. This is the amount of taxable income on which non-itemizing filers pay no tax. The standard deduction, also called the zero-bracket amount, would be increased to $2,900 for single returns, $4,000 for married taxpayers filing jointly, and $3,600 for head-of-household returns. The new limits would take effect Jan. 1.
Under current law, the limits are projected to be $2,480 for returns filed by singles, $3,670 for married couples filing jointly, $2,480 for heads of households.
Eliminating deduction for state and local taxes. The itemized deduction for state and local income taxes and for other state and local taxes that are not incurred in carrying on a business would be repealed as of Jan. 1.
Under current law, one-third of all families claim this deduction; in dollar value, two-thirds of this deduction is claimed by families with incomes of $50,000 or more.
Limiting deductions for charitable contributions. Individuals who itemize deductions would be able to deduct charitable contributions, but non-itemizers would not, effective Jan. 1.
Under current law, non-itemizers may deduct contributions made through the end of 1986.
Liberalizing capital-gains taxation. Fifty percent of the gain on the sale or exchange of capital assets held more than six months would be excluded from taxable income effective July 1, 1986. Given a proposed top individual tax rate of 35 percent, that would produce a top capital-gains rate of 17.5 percent.
Under current law, 60 percent of the gain is excluded, yielding a top capital-gains rate of 20 percent.
Taxing employer-provided health insurance. Employer contributions to a health plan would be included in an employee's gross income up to $10 a month for individual coverage or $25 a month for family coverage starting Jan. 1. Group term life insurance, legal services, dependent care, and education assistance would remain untaxed.
Under current law all in-kind benefits are tax exempt.
Canceling the two-earner deduction. Starting Jan. 1, two-earner couples would no longer be able to deduct the lesser of $3,000 or 10 percent of the qualified earned income of the spouse with the lower income.
Under current law, such a deduction is available.