National Journal Magazine Archive

TAXES - Seven Targeted Tax Cuts: A Summary

	Child Care 
	     Many taxpayers are eligible now for a nonrefundable tax 
credit for child care expenses. The Clinton Administration wants 
to increase the maximum credit from 30 percent to 50 percent of 
employment-related child care expenses for taxpayers with incomes 
of less than $ 30,000. President Clinton and several lawmakers 
would also provide tax credits for stay-at-home parents. 
	     Supporters want to help families pay for quality child 
care and encourage the development of quality child care 
facilities, as well as assist parents who stay at home. 
	     Low- and middle-income taxpayers and stay-at-home parents 
stand to benefit the most from the Clinton proposal. 
	     Clinton's plan would cost $ 5 billion to $ 6 billion 
between 1999 and 2004, according to the Congressional Budget 
Office. 
	     Various proposals have been backed by Sens. John H. 
Chafee, R-R.I.; Thad Cochran, R-Miss.; Susan Collins, R-Maine; 
Christopher J. Dodd, D-Conn.; Orrin G. Hatch, R-Utah; James M. 
Jeffords, R-Vt.; Jack Reed, D-R.I.; Pat Roberts, R-Kan.; Olympia 
J. Snowe, R-Maine; and Arlen Specter, R-Pa. 
	     There is bipartisan support in Congress for action. Dodd 
succeeded in adding an amendment to the Senate budget resolution 
to make child care a priority. With Clinton also supporting 
action, Congress and the White House may be able to work out a 
compromise. 
Estate Tax 
	     Current tax rates range from 37 percent to 55 percent, 
depending on the size of the estate. Some House critics of the 
estate tax, which they call the death tax, want to lower the tax 
rate 5 percentage points each year, eliminating the estate tax in 
11 years. Others want quicker action. 
	     Critics say the estate tax destroys family businesses. 
They say heirs are often forced to sell or turn over more than 
half of their inheritance to pay taxes. As a result, they say, 70 
percent of family-owned businesses do not make it to the second 
generation. 
	     In 1997, 1.7 percent of all decedents had estates large 
enough to incur estate taxes. 
	     The gradual elimination of estate taxes would cost $ 44 
billion over the first five years. 
	     Among those pushing for a phase-out or elimination are 
Republican Reps. Christopher Cox of California, Jennifer Dunn of 
Washington, and Jerry Weller of Illinois; and GOP Sens. John D. 
Ashcroft of Missouri, Ben Nighthorse Campbell of Colorado, and 
Jon L. Kyl of Arizona. 
	     Estate tax changes are a high priority of Republican 
leaders, but Democrats say the plans would benefit the rich too 
much. 
Alternative Minimum Tax 
	     Individuals must now pay either the regular income tax 
(reduced by nonrefun
dable credits) or a minimum tax (unchanged by 
credits), whichever is greater. Critics want to repeal the AMT, 
overhaul it, or adopt a temporary fix that would allow 
individuals for taxable years 1999 and 2000 to offset their 
regular tax liability with various nonrefundable tax credits, 
regardless of the amount of their minimum tax. 
	     A two-year reprieve would benefit middle-income taxpayers 
who might be hit with the AMT. Because the AMT is not indexed for 
inflation, the complicated, time-consuming, and potentially 
expensive tax is affecting more people. 
	     Some 1.5 million individuals will be hit with the AMT in 
1999. Absent changes, the number will rise to 12 million by 2009. 
	     Clinton's two-year reprieve would cost $ 1.4 billion. 
Abolishing the individual AMT could cost more than $ 34 billion 
from fiscal years 2000 to 2004. 
	     The White House backs waiving limitations on a batch of 
nonrefundable tax credits; House Democrats and Republicans have 
separate bills waiving the child tax credit; Rep. Phil English, 
R-Pa., would waive the work opportunity tax credit; Sen. Richard 
G. Lugar, R-Ind., would index AMT exemption amounts for 
inflation. 
	     AMT relief has bipartisan support. The problem is paying 
for it, which makes a temporary fix more appealing than permanent 
solutions. 
Marriage Penalty 
	     Sponsors want to reduce the extra tax that some married 
couples have to pay. Most proposals raise the standard deduction 
for married couples. Some Republican bills also widen tax 
brackets for married couples; some Democratic plans steer more 
benefits to lower-income couples. 
	     The government ought to encourage, not penalize marriage. 
Two-earner couples pay an average of $ 1,400 more than two 
singles; although the CBO estimated that only 42 per cent of 
married couples faced a ''penalty'' in 1996, while 51 percent got 
a ''bonus.'' 
	     Most proposals would help all 50 million married couples, 
regardless of whether they're currently penalized. 
	     Raising the standard deduction costs up to $ 6 billion a 
year. Widening the tax brackets at the same time pushes the cost 
to $ 30 billion a year. 
	     Rep. Nancy L. Johnson, R-Conn., and Sens. Charles E. 
Grassley, R-Iowa, and Dianne Feinstein, D-Calif., would raise the 
standard deduction. Reps. Jennifer Dunn, R-Wash., and Jerry 
Weller, R-Ill., and Sen. Kay Bailey Hutchison, R-Texas, propose 
standard deduction and tax bracket changes. 
	     Both parties want to show they're pro-family. But 
Democrats and Clinton will balk at the high-cost options. 
Retirement Savings Incentives 
	     Sponsors want to increase tax-free retirement savings 
opportunities through individual and employer plans. Ideas 
include raising 401(k) contribution limits, creating ''Roth 
401(k)s,'' improving portability, and liberalizing IRAs. Clinton 
wants some pension changes and ''USA accounts'' that would very 
likely give cash and matching funds to help middle-income workers 
save. 
	     The goal is to get workers to save for retirement and to 
spur small businesses to offer pensions. (Two possible snags: 
Politicians often let savers tap accounts before retirement; the 
rich would be ''rewarded'' for something they would do anyway.) 
	     Congressional proposals tilt toward upper-income and 
older workers, while Clinton's favor middle-income workers. 
	     There are no estimates yet for congressional bills. 
Clinton wants $ 536 billion for USA accounts over 15 years. 
	     Sens. Max Baucus, D-Mont., and William V. Roth Jr., R- 
Del., want new IRA limits. Reps. Benjamin L. Cardin, D-Md., and 
Rob Portman, R-Ohio, want to liberalize employer plans; Sens. 
Robert Graham, D-Fla., and Charles E. Grassley, R-Iowa, have a 
similar bill. No bills yet on USA accounts. 
	     Modest pension reforms have broad bipartisan support. 
Clinton's USA accounts could bog down in the Social Security 
debate. 
Long-Term Care 
	     Clinton would give middle-income taxpayers a $ 1,000 tax 
credit to help offset costs associated with long-term care 
required by serious illness or disability. Other proposals 
encourage the purchase of insurance or require federal worker 
benefits to include long-term care insurance. 
	     Current law provides little help for taxpayers caring for 
a relative with a serious illness or disability. Clinton's tax 
credit is a first step at addressing a significant baby boomer 
issue. 
	     The Administration estimates 1.2 million elderly, 550,000 
younger adults, and 250,000 children could benefit from the tax 
credit. 
	     CBO estimates the cost of Clinton's plan at $ 5.4 billion 
from 2000 to 2004. 
	     Rep. Christopher H. Smith, R-N.J., would let taxpayers 
withdraw money from retirement plans to pay for long-term-care 
insurance; Sen. Charles E. Grassley, R-Iowa, would give taxpayers 
a deduction; Senate Minority Leader Thomas A. Daschle, D-S.D., 
has a bill to help the elderly with long-term-care protection. 
	     There's bipartisan sympathy for this problem, and 
Clinton's approach doesn't cost much. Expect a debate over 
whether to use the tax code to help with costs of care or to 
encourage people to buy insurance for long-term-care needs. 
Education 
	     Clinton has a collection of small proposals aimed at 
easing the tax treatment of student loans and employer-provided 
education assistance. Republicans are considering ideas to 
provide a refundable credit for tuition and allow taxpayers to 
exclude higher-education costs from gross income. Both parties 
support increasing permissable annual education IRA 
contributions. 
	     Use of the tax code is a means to an end for both parties 
in the effort to boost education agendas. 
	     Treasury declined to estimate how many people could 
benefit from Clinton's plan. Millions of students and parents 
could take advantage of GOP expansions. 
	     Clinton's proposals would cost an estimated $ 2 billion 
over five years. No cost estimates available for GOP plans. 
	     Various plans are being sponsored by Republican Reps. 
Spencer Bachus of Alabama, Kay Granger of Texas, Kenny C. Hulshof 
of Missouri, and James E. Rogan of California; and Republican 
Sens. Paul Coverdell of Georgia and Jeff Sessions of Alabama. 
	     Clinton's ideas are modest, so their prospects appear 
good. Expansions of IRA contribution limits have bipartisan 
backing, as do exclusions from gross income of education expenses 
covered by state tuition programs.