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New Administration, New Tax-cut Proposals: What Will Your Tax Situation Look Like Under The New President?
CCH Provides Analysis of Bushs Tax
Reality Check on Whats Likely to Get Through Congress This Year
(RIVERWOODS, ILL., February 2, 2001) With the
new president now sworn in and promising tax reform will be a priority for his
administration, its time to start taking a look at what this will mean for the
millions of American taxpayers, according to CCH INCORPORATED (CCH), a leading provider of
tax and business law information.
Below, CCH provides a brief review of Bushs proposed
tax package as well as analysis of how it would impact taxpayers of different income
levels. Last, for a reality check, CCH examines which areas of the tax code appear to have
the greatest likelihood of changing with the new president and a new Congress during 2001.
Bushs Tax Proposal Highlights
Bushs economic plan would allocate $1.6 trillion of
the projected budget surplus over the next 10 years to tax cuts and include an
across-the-board cuts in income tax rates.
Under his plan, the two highest tax brackets would be
combined so that those currently with tax rates of 36 percent or 39.6 percent would see
their tax rate drop to 33 percent.
The rate for those in the 28-percent and 31-percent
brackets would also fall to 25 percent. For those in the 15-percent income bracket,
currently the lowest bracket, the rate would drop to 10 percent for the first $12,000 in
income for married couples ($6,000 for single individuals and $10,000 for single parents).
In addition, Bush also called for several targeted tax relief measures during his
presidential campaign, including:
- Eliminating the estate tax;
- Reducing the marriage penalty;
- A $2,000 refundable health credit to make health insurance
more affordable for low-income families;
- Expanded tax credit for parents with children under 17 and
an increase in the income threshold for the credit from $75,000 annually for a single
parent and $110,000 for a married couple to $200,000 for all;
- A doubling of the child credit to $1,000 per child;
- Expanded education savings accounts from $500 to $5,000 per
- Incentives for charitable giving;
- 100-percent deductibility of premiums paid for long-term
- An additional personal tax exemption, valued at $2,750, for
each spouse, parent or relative that a caregiver tends to in his or her home; and
- Investor-based tax credits to encourage the rehabilitation
or construction of new, affordable homes in distressed communities.
How the Proposed Tax Cuts Would Work
While many special provisions did find their way into the
Bush tax package, as indicated above, the across-the-board tax cut is seen as a method to
help simplify the tax code or at least not make it any more complex. However, this
proposed tax cut does not affect everyone equally, according to CCH analysis.
"Essentially, everyone who currently earns enough to
pay income taxes would see their tax bills go down under the proposed tax package.
However, those individuals with higher incomes would see greater reductions in their taxes
both in percentage and actual dollars under the Bush plan because the payroll taxes
or Social Security tax ends after the first $80,400 in income," said Mark
Luscombe, an attorney, CPA and principal analyst with CCHs Federal and State Tax
As part of its analysis, CCH looked at individual taxpayers
and married couples filing jointly with annual incomes at various different levels to see
how theyd come out under Bushs proposed tax-cut package.
Will You be Better Off?
2001 tax under current law $2,633
2001 tax under Bushs tax proposal $2,333
spouse working, two children
2001 tax under
current law $1,500 refund
2001 tax under Bushs tax proposal $1,500 refund
|Single, no children
2001 tax under current law $8,398
2001 tax under Bushs tax proposal $7,633
|Married, both spouses working,
2001 tax under current law $3,620
2001 tax under Bushs tax proposal $1,645
|Single, no children
2001 tax under current law $23,208
2001 tax under Bushs tax proposal $20,133
|Married, both spouses working,
2001 tax under current law $15,748
2001 tax under Bushs tax proposal $12,330
|Single, no children
2001 tax under current law $39,144
2001 tax under Bushs tax proposal $33,230
|Married, one spouse working,
2001 tax under current law $31,395
2001 tax under Bushs tax proposal $25,580
|Source: CCH INCORPORATED, 2001
Notes: All incomes are adjusted gross incomes. Assumes tax proposals and current tax laws
fully phased in (some wouldnt take effect for several years). Other assumptions:
- Assumed that in cases where both spouses worked, each spouse
had equal earnings.
- Assumed that all taxpayers claimed the standard deduction
rather than itemize.
- Assumed that the children were young enough to qualify for
the child credit.
- Assumed that in cases where both spouses worked, they did
not incur any child care expenses.
Taxpayers who have a tax liability after taking into
account their tax credits and earned income credits appear to benefit some under
Bushs proposed tax package compared to current tax law, those in the top income
level faired the best.
From Proposal to Reality
While Bush is expected to submit to Congress the same tax
proposal he campaigned on, its doubtful that most of it will get through in its
original form and many of the areas may not be addressed at all, especially given that
Congress is now split nearly 50-50.
The biggest issue for many in Congress is the price tag of
the proposed tax package. The $1.6 trillion estimated cost represents 28 percent of a
projected $5.6 trillion budget surplus over the next 10 years. With recently increased
surplus projections and a slowing economy, there is growing support for a broad-based tax
"With the slow-down in the economy, however, its
possible that the projected surplus may be seen as revised downward, meaning that later in
the year the proposed tax package may be seen as even more expensive, something many in
Congress will find even harder to swallow," said Luscombe.
So, where will there be enough of a consensus for tax
relief? According to CCH, among those areas that are likely to see some action in 2001
are: reduction in the marriage penalty and in estate taxes, tax relief for healthcare
expenses, more generous charitable deduction allowances and revised pension provisions to
raise various dollar limits on qualified plans and Individual Retirement Accounts.
"During 2000, there wasnt a tremendous amount of
progress made on tax code revisions. However, it was an election year and from the
presidential election down, candidates campaigned on tax reform," said Luscombe.
"As a result, voters will be looking to see action and, ideally, some progress in the
area of reform."
About CCH INCORPORATED
CCH INCORPORATED, headquartered in Riverwoods, Ill., was
founded in 1913 and has served over four generations of business professionals and their
clients. The company produces more than 700 electronic and print products for the tax,
legal, securities, human resources, health care and small business markets. CCH is a
wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed
at www.cch.com. The CCH Federal and State Tax group web
site can be accessed at http://tax.cchgroup.com.
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