The Senate Finance Committee plan -- approved June 20 and passed by the Senate June 27 with its core provisions intact -- includes significant tax cuts for individual taxpayers. Deloitte & Touche has prepared a series of income scenarios that analyze the effects that both plans would have on taxpayers with household incomes ranging from $20,000 to $1,000,000. Whether taxpayers would reap the benefits of the new proposals depends on whether they have children that fit into special categories, and what their adjusted gross incomes are.

For example, a married couple with two children, ages 10 and 13, and a household income of $35,000 would have their federal income taxes reduced by $1,052 under the plan. For the same couple, if both children were five years older and the eldest was in college, then the plan would provide a $1,500 tax cut and reduce their total.

This $1,052 amounts to a 40% decrease from current law. When you think of it in terms of the raise your boss would have to give you to get $1,052 in your pocket after paying payroll taxes, state and federal income taxes, that raise would have to be over $1,343.

A second group that also fares well under both proposals includes taxpayers with incomes between $50,000 and $100,000 as long as they also have children under certain ages or that are college students. Under the plan, these taxpayers do best if their children are eligible for the education incentives, and for the $500-per-child tax credit for taxpayers with children under 18.

The Deloitte & Touche model assumes an arbitrary capital gains amount based on 3% of gross income. To the extent a particular taxpayer had greater capital gains income, the Senate Finance Committee tax provisions provide additional benefits. For example, a married couple with two children with household income of $200,000, half of which comes from capital gains, saves $8,000 in taxes under the plan (about a 21% decrease from current law).

Twenty-nine scenarios calculating the effects of the two tax plans on taxpayers are attached to this release:

• Scenarios 1 through 7 are single individuals with no children.
  
  
• Scenarios 8 through 14 are married taxpayers with no children.
  
  
• Scenarios 15 through 21 are married taxpayers with two children (one child under age 13 and one child under age 18).
  
  
• Scenarios 22 through 28 are married taxpayers with two children (one child under age 18 and one child in college).
  
  
• Scenario 29 is a married couple with two children and a household income of $200,000, half of which comes from capital gains.

When compared to current law, scenarios 1 through 14 highlight the effect of the capital gains tax reduction exclusion. Comparing scenarios 8 through 14 to scenarios 15 through 21 highlights the effect of the child tax credit. A comparison of scenarios 8 through 14 to scenarios 22 through 28 highlights the effect of the plan’s education credit.

Index to Scenarios