Taxes: Key features of Reagan tax-reform plan
FOR individuals: Set three tax rates to replace the current law's 14, which range from 11 to 50 percent. On joint returns, income under $4,000 would not be taxed; income $4,000-$29,000 would be taxed at 15 percent; income $29,000-$70,000 would be taxed at 25 percent; and income greater than $70,000 would be taxed at 35 percent.
Raise the personal exemption for a taxpayer and each dependent to $2,000 from $1,080.
Increase the amount of taxable income in which no tax is due (the zero-bracket amount) to $2,900 for single individuals, up from $2,480. For married taxpayers filing jointly, the zero-bracket amount would be $4,000, up from $3,670.
Repeal state- and local-income tax deductions.
Repeal deductions for other state and local taxes -- real, personal property, and sales -- unless those taxes were incurred in the course of income-producing activity.
Limit the deduction for mortgage interest. Payments made on a principal residence would continue to be fully deductible. Mortgages on second homes and other personal interest payments would be limited to $5,000, plus an amount equal to an individual's investment earnings. Current law limits nonmortgage interest deductions to $10,000, plus the amount of investment income.
Cut the top capital-gains rate from 20 percent to an effective rate of 17.5 percent.
Tax employer-paid health-insurance premiums, which currently are tax free. Each year the first $120 of premiums paid for individuals and the first $300 paid for families would be taxable.
Boost from $250 to $2,000 the maximum permissible Individual Retirement Account contribution for a spouse who doesn't work outside the home.
Eliminate the 401(k) pension plan. The arrangement now lets individuals set aside up to $30,000 a year without paying income tax on the money until it is withdrawn.
Repeal the two-earner deduction, which now lets couples deduct the lesser of $3,000 or 10 percent of the qualified earned income of the spouse with the lower income. For business:
Cut the maximum corporate tax rate from 46 to 33 percent.
Eliminate the investment tax credit, which now allows companies a credit against their income-tax liability for 6 to 10 percent of the cost of buying certain new buildings and equipment.
Scale back the generous depreciation allowances in current law.
Impose a tax on the ``windfall gains'' of companies that had benefited from generous depreciation allowances between 1980 and 1986.