Thursday, January 9, 2002

A story published today by the USA Today reports that the tax plan of George Bush has something for just about everybody who pays taxes, but some taxpayers will benefit more than others. Some wealthy investors will save enough to buy a new car. Some low-income single taxpayers will barely save enough to buy a new muffler.

" 'Get married' seems to be the strong message here," says Neil Allen, spokesman of tax publisher CCH.

The benefits:

- An increase of $400 in the per-child tax credit for dependents under age 17 — to $1,000, up from $600. The 2001 tax cut law slated the change for 2010, but Bush wants it effective for income paid this year (story, 1B). Bush's proposal also would protect big families with a big tax credit from smacking up against the alternative minimum tax, a provision in the tax code that is intended to prevent well-off taxpayers from using credits and deductions to avoid paying taxes.

- For millions of married taxpayers, tax liability on a joint return exceeds what they'd have to pay if they were single — the so-called marriage penalty. Bush is calling on Congress to eliminate it effective this year, rather than phasing it out over five years starting in 2005 as outlined in the 2001 tax cut law.

CCH tax analyst Mark Luscombe says the proposal delivers broad relief to married couples regardless of whether they're both income earners or itemize.

While the Bush plan offers significant tax relief to middle-income families, the biggest beneficiaries are taxpayers in the top brackets, says Brenda Schafer, tax analyst for H&R Block.

The Bush proposal would accelerate a scheduled reduction in tax rates, slashing the top rate to 35% from the current 38.6%.

Taxpayers with income of more than $1 million a year would see an average tax cut of $30,000 in 2003, according to Citizens for Tax Justice, an advocacy group that opposes the plan.

Wealthy individuals are also more likely to own dividend-paying stock outside of a 401(k) or similar retirement savings plan. Currently, dividends on those stocks are taxed at ordinary income rates, or 38.6% for investors in the top tax bracket. The Bush plan would eliminate that tax, making dividends much more valuable for those investors.

A family with adjusted gross income of $300,000, including $10,000 in dividend income and $50,000 in itemized deductions, would save $8,840 in taxes in 2003, a 12.7% reduction from taxes under current law, according to CCH.

By contrast, a single, childless taxpayer with no dividend-paying stocks would save $326, a reduction of 4.2%, CCH says.

The family-oriented tax relief comes at a time when the number of unmarried taxpayers is at a record high. Never-married, widowed and divorced taxpayers account for 43% of the U.S. population. In 13 states, unmarried taxpayers make up more than half of the population, says Thomas Coleman, executive director of the American Association for Single People, an advocacy group.

"We are fast becoming an unmarried majority nation," he says.

The Bush proposal reflects a growing bias against unmarried taxpayers, Coleman says. "They're using this as some type of social engineering," he says.

Robert McIntyre, director of Citizens for Tax Justice, says politicians overlook singles because many singles — particularly those ages 18 to 24 — don't vote. And for many singles, their marital status is "mainly a way of life, rather than a political cause," Coleman says.

But as the tax burden shifts to singles, that could change. Advocacy groups for unmarried individuals are increasingly challenging everything from the tax code to workplace benefits.

"There's a movement afoot," says Allen of CCH. "I'm wondering if in a couple of years we won't be hearing people grumbling about the bachelor tax."