President Bush's economic reform proposals, if enacted, promise a wide variety of tax breaks for individuals.
Times staff writer Kathy M. Kristof interviewed tax experts at the accounting firms Coopers & Lybrand in Washington, D.C., and Holthouse Carlin & Van Trigt in Los Angeles to assess the proposed budget's impact on individuals and families with varying levels of income and wealth. The following hypothetical examples are drawn from tax proposals available Wednesday and do not include all aspects of the budget, such as Bush's health insurance plan.
Low Income
Main break is from higher personal exemption rates. Those who have no children and little ability to save or invest would not benefit from the proposals detailed to date. They are likely to get additional breaks when details of Bush's health care proposals are revealed, however.
Taxpayer: Individual, no children.
Income: $10,000
Assets: None
Strategy: Is unable to take advantage of tax breaks offered in the Bush plan.
Current federal tax: $615
Federal tax under proposed rules: $615
Savings: None
Taxpayer: Single parent with two children
Income: $22,000
Assets: None
Strategy: Take advantage of higher personal exemption rates for children.
Current federal tax: $1,478
Federal tax under proposed rules: $1,440
Savings: $38, or 3%
Middle Income
In theory, at least, these taxpayers could benefit from nearly all of Bush's proposals. They can take money out of retirement savings to buy homes or pay medical expenses without triggering tax penalties. Meanwhile they could get a $5,000 first-time home buyer tax credit. Interest paid on student loans would be deductible and they could take advantage of lower capital gains rates and higher exemptions for children.
Taxpayer: Couple with four children, two of whom are in college.
Income: $75,000
Assets: Own their own home and have $15,000 invested in mutual funds purchased in 1987. They earned $2,000 in capital gains during 1992 and paid $2,600 in interest on their children's student loans.
Strategy: Claim higher personal exemptions for the children. Take advantage of lower capital gains rates and deduct interest paid on the student loans.
Current federal tax: $8,730
Federal tax under proposed rules: $7,610
Savings: $1,120, or 13%
Taxpayer: Couple with two children.
Income: $50,000
