The 1997 Clinton Tax Plan
by OnLine
February 24, 1997
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Tax News & Views Special Report The 1997 Clinton Tax Plan by OnLine February 24, 1997 |
Middle-income families with children are the biggest winners under both Clinton's and the GOP's tax plans.
The big winners under both President Clinton’s tax-cut proposals and the Republican tax plan are middle-class families with children.
recently analyzed both President Clinton’s tax-cut proposals from his proposed 1998 fiscal year budget and the Republican tax plan. We found that families with household incomes between $20,000 and $50,000 are the biggest beneficiaries on a percentage basis under both Clinton’s proposals and the Republican tax plan.
President Clinton’s fiscal 1998 budget, which was sent to Congress February 6, and the Senate Republican plan unveiled January 21 both include significant tax cuts for individual taxpayers. has prepared a series of income scenarios that analyze the effects 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 15, and a household income of $35,000 would have their federal income taxes reduced by $1,079 under the Republican plan and by $500 under the Clinton plan. For the same couple, if both children were five years older and the eldest was in college, then the Clinton plan would provide a $1,500 tax cut and the GOP plan would reduce their taxes by $579.
Now, $579 may not sound like much of a tax cut if you talk about it in terms of half a tank of gas a week, but it amounts to a 22% decrease from current law. When you think of it in terms of how much of a raise your boss would have to give for you to end up with an extra $579 in your pocket after taxes, that raise would have to be over $750.
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 are college students. Under the Clinton plan these taxpayers do best if their children are eligible for his education incentives, and under the GOP plan certain of these families do well because of the $500-per-child tax credit for taxpayers with children under 18. The President’s plan provides a similar credit but limits it to taxpayers with children under age 13.
The third biggest winners under the Republican plan are certain high-income retirees. They derive the greatest benefit from the capital gains deduction and its interplay with the calculation for taxing Social Security benefits.
The 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 Republican 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 $14,755 in taxes under the GOP plan (about a 38% decrease from current law), but receives no tax benefit under the Clinton plan.
Thirty-one scenarios calculating the effects of the two tax plans on taxpayers accompany this story:
- 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).
- Scenarios 29 and 30 are married retirees over age 65.
- Scenario 31 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 Republican 50% capital gains tax exclusion. Comparing scenarios 8 through 14 to scenarios 15 through 21 highlights the effect of both the GOP and the Clinton child tax credit. A comparison of scenarios 8 through 14 to scenarios 22 through 28 highlights the effect of President Clinton’s education initiatives.
The analysis of President Clinton’s tax cuts took into account his proposals to provide a $500-per-child family tax credit, and a proposal to allow either a $1,500 two-year tax credit or a $10,000 tax deduction for post-secondary education costs. The analysis of the Senate Republican tax cuts included a more widely available $500-per-child family tax credit and a 50% deduction for capital gains.
Other items highlighted in a separate table are a Republican proposal to allow a deductible capital loss on the sale of a principal residence; Clinton’s proposal to allow an exclusion of up to $500,000 ($250,000 for single filers) on the gain from the sale of a principal residence; expanded individual retirement accounts proposed both by Senate Republicans and the President; and a GOP proposal that would allow taxpayers to deduct the first 60 months of interest on their student loans.
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